iTunes Price Change in April - Thoughts

By Richard Menta 3/26/09

After years of preserving the $0.99 track price on iTunes, Apple will officially shift to tiered pricing on April 7th. On that date iTunes tracks will adopt a three-step price strategy of $0.69, $0.99, and $1.29 per download. Presumably, the hottest tracks will immediately jump to the $1.29 price point while most older fare will drop down to $0.69. Price selection is left to each records label's discretion.

Most of the press and the pundits are focusing on the $1.29 price point, a price that Apple already introduced to iTunes back in April of 2007 when iTunes sold its first DRM-free tracks for a $0.30 premium. The feeling from many has been negative. In the midst of a faltering economy some are calling the 30% price hike a move in the wrong direction.

"This will be a PR nightmare," predicted former EMI Music executive Ted Cohen, who is managing partner of digital media consulting firm TAG Strategic. "It is for the music industry what the AIG bonuses are for the insurance industry."

Indeed, higher prices will make paid tracks a less attractive alternative to file sharing, though it waits to be seen how regular iTunes customers will react. As Paul Resnikoff pointed out on Digital Music News "Now, the market will determine whether $1.29 makes any sense, or whether the more expensive content will simply alienate music fans". Of course, if higher prices fail to raise overall digital revenues then the label is free to roll it back.

What I find more interesting here is the viability of the $0.69 price point. Jobs himself stated that on iTunes there will be "many more songs [will be] priced at 69-cents than $1.29." I have always felt that the $0.99 price was too high. The question is will a $0.30 drop be enough to drive significantly higher consumption of these tracks. If so overall revenues will grow, suggesting that a low cost and high volume strategy is the future for the paid download market. That, over time, could push prices down on all iTunes downloads, even those topping the charts, as labels price to maximize cash flow.

In my June 2007 article "iTunes: Still on That First $20 Gift Card" I wrote:

I realized not long ago that I have milked my $20 iTunes gift card for over a year now with several dollars still left on it. The $0.99 price point limits the number of tracks I can buy to 20 and so to maximize value I find myself hording track buys. Simply put, I save my selections for only those songs I deem most worthy.

Lower track prices lower the risk of experimenting with song tracks, important to young people who want to know more about jazz and classical music, but who presently reserve their pennies for contemporary Hip Hop and pop selections. I place the sweet spot for digital pricing somewhere between $0.10 and $0.25 a track, a price point that is severly hindered by a price floor The US Copyright Royalty Board (CRB) essentially put in place last year.

It waits to be seen if $0.69 is low enough for the average iTunes customer. It is quite possible that the price changes will do nothing more than confirm the validity of the $0.99 price point. Well, validity in that the price drops and hikes aren't significant enough to substantially change usage patterns.

Since digital downloads are not making up for lost CD sales the labels need to significantly increase consumer usage to compensate.

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