iTunes Revenue Drops on Tiered Pricing

By Richard Menta 5/4/09

According to several major record label executives the shift to a variable pricing scheme on iTunes has led to a sharp decrease in overall sales. Requesting anonymity, the execs gave Digital Music News a window into iTunes opening weeks under a new three-tiered pricing structure of $0.69, $0.99 and $1.29. The execs told Digital Music News that the 30% price increase on many popular tracks actually caused revenues to decline.

"It's what we're seeing after the first couple of weeks," said one executive as they shared some of their concerns. The executives did stress that these results are early and thus should not be taken as a final verdict on tiered pricing on iTunes. They told DMN that the results will most likely lead to price adjustments to "figure out the best mix".

Our take on iTunes tiered pricing is that the labels have so far ignored the $0.69 price point. Last month in our article iTunes : Where are the $0.69 Tracks? we found that it was impossible to find lower priced tracks outside of a handful iTunes posted on the main page. Without a reasonably even representation at the lower dollar mark the tiered pricing plan came off as nothing more than a price hike. There is a good chance many iTunes customers feel the same way and that is why they appear to be rejecting purchases at the higher price point.

As the labels rethink their pricing mix the $0.69 price point should become more visible on iTunes. Then we may be able to confirm if higher sales volume can compensate for lower prices.

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