Record Industry Wants iTunes to Charge More

By Richard Menta 4/7/04

I have to tell you, when I read Ethan Smith's Wall Street Journal's article today I just had to shake my head. It sems that some in the record industry are not satisfied with the $0.99 price Apple iTunes and others charge for online singles. They want to raise the price higher.

How much higher? They would like to see the average single sell for $1.25 to $2.49 a track. At the high end, that means a 14-track CD like Jay-Zs the Black Album would sell for about $35.00. Amazon sells the CD right now for $10.99.


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And that is the story of the record industry. When they get a good buck for their products, keep asking for more.

Of course, that is the mantra of good business. If you CAN raise prices (meaning people will pay it), raise prices. The problem here is that the record industry biggest complaint these days is that not enough people are buying at present prices.

The industry blames that all on file trading. Their customers - the people who actually count - blame it on high prices and the spotty quality of the products sold. For example, many feel that The Black Album is a great record, but I suspect few of those fans would agree that digital downloads that are three times higher than the CD price is a good value.

I wrote an article a few years back where I stated that the biggest promise of digital downloads is as a low cost alternative to high CD prices, prices that limit the average audiophile to 6 CDs a year. If digital downloads can offer a significantly cheaper alternative, people would buy more music and supplement, not replace, those 6 hard CDs.

And why shouldn't they be cheaper? As Smith stated in his article "Unburdened by manufacturing and distribution costs, online music was supposed to usher in a new era of inexpensive, easy-to-access music for consumers". The record industry incurs no costs to sell their music on iTunes. All they did was give their permission. They didn't even have to convert the tracks to a digital format, Apple did that.

For that effort - or lack of - they earn $0.75 for every track.

Meanwhile, the new services rushing to sell tunes online are making a very modest, if any, profit.

Raising prices could sink these services. If enough die, we all know what their customers will do. They will fire up KaZaa.

That is what has frustrated the MBA in me. So many of the record industry's most elaborate efforts to derail online music have either backfired or had minimal effect. Raising prices to where downloads are more than a CD is nothing more that derailing a business model that has proved to be a success so far. Maybe it's only a modest success, but it is a success.

Their efforts are endemic of an industry that is staring change in the face and can't adjust.

In the 1930's the radio industry saw TV as a threat to replace it. What they did was to embrace the new technology and invest heavily in it. ABC, NBC, and CBS TV are the direct spawn of their radio network equivalents. Radio adjusted and evolved into Radio/TV. Profits grew.

Kodak saw digital photography as a threat to the celluloid they had a near monopoly on. They too decided to embrace the new technology and the survival of the company is much better for it.

But the record industry does not want to invest in the Internet in the same way. They have spent most of their efforts fighting it. Like the railroad industry that refused to accept the advantages of the airplane and the diesel truck, they are looking at disaster.

Sony was the first company to dabble in selling digital tunes online. It failed. A big reason it failed is because Sony demanded $3.49 per track. Frankly, it was too much money and the value wasn't there (I detail this in my article from August of 2000 Priced to Lose? Labels Sell Music Online if anyone cares about ancient history).

I have stated for a while that digital download prices prices should drop over time, because this drop will only encourage more to buy. Keep prcies low, earn your fortune in volume. Walmart's $0.88 price point was a big step in the right direction (as long as the service works out its kinks). Raising prices will only stagnate the gains made to date.

And that will only stimulate the record industry to sue more file traders. If that is the path, sell your record company stock now. Adecade from now it might not be worth much more than that old railroad stock.

 


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