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U.S. Investigating Online Music Pricing 213

An anonymous reader writes "Times Online has a story about the U.S. Federal Government investigating whether the music labels are fixing prices for online music sales. 'The antitrust division is looking at the possibility of anti-competitive practices in the music download industry ... Mr Jobs suggested such a move would drive owners of Apple's iPod, the hugely popular digital music player, to piracy, a problem that has cost the music industry billions in revenues in recent years.'"
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U.S. Investigating Online Music Pricing

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  • by yagu (721525) * <(moc.liamg) (ta) (ugayay)> on Friday March 03, 2006 @01:23PM (#14843457) Journal

    From the fine article:

    Mr Jobs suggested such a move [in reference (apparently) to greedy prices set by music companies] would drive owners of Apple's iPod, the hugely popular digital music player, to piracy, a problem that has cost the music industry billions in revenues in recent years.

    I wonder, does Mr. Jobs actually believe this, or is this casual conjecture/repetition by the author?

    Regardless, I'm still curious about and waiting for the definitve and objective study that shows real correlation, because I still don't believe it.

    The biggest "cost" to the music industry over the last five years has been and continues to be their disdain for the consumer (e.g., the SONY debacle, protected "CDs") and their insistance on charging similar fees for songs even while the business model dramatically evolves (e.g., hugely cheaper distrubution channels).

    Heck, if the music companies were found to be colluding by charging $15+ per CD years back (they were), what are the chances they are doing the same now when the per-tune cost remains the same as distribution costs drop?

    My biggest fear though is the music industry gets "caught" and settles in similar fashion to their previous settlement, à la "giving away" free downloads (by the truckload) to local libraries, but restricting the downloads to non-selling tracks. Sigh.

    • Actually, I think this is one instance where the music industry want to get caught. Then Apple's fixed price model gets ruled illegal and had to be changed. Record companies say sorry and immediately use their (untouched by this) cartel to jack up the prices on any songs that they think they can sell at a higher price. They want to lose this case but the real losers will be the customers. If you're still unsure just look around for the labels vigourously denying price fixing in online music. They'd be all
      • Maybe I'm missing something, but how is Apple in trouble here? It's the other companies that are under investigation. Apple is the one who's actually using competitive prices. And what's even better, they are pricing based off of cost, not demand. Buisness practice dosn't get much more honest than that. The only way I see they could lose is if they lose customers as competitors are forced to drop their prices by the government.
    • Worst quote ever (Score:5, Informative)

      by mcc (14761) <amcclure@purdue.edu> on Friday March 03, 2006 @01:32PM (#14843538) Homepage
      The full version of the quote, if you fill in the ellipsis, is:
      Justice Department has launched an official inquiry into possible price fixing in the online music industry.

      It is thought the probe will investigate allegations that music labels have colluded to fix the wholesale prices they charge online retailers such as Apple, which sells digital music through its iTunes website.

      "The antitrust division is looking at the possibility of anti-competitive practices in the music download industry," a spokeswoman for the department said.

      Last year, Steve Jobs, Apple's chief executive, accused the music industry of being "greedy" for wanting to raise digital download prices.


      Mr Jobs suggested such a move would drive owners of Apple's iPod, the hugely popular digital music player, to piracy, a problem that has cost the music industry billions in revenues in recent years.
      The way the slashdot article quotes this-- jumping right from talking about the justice department "launching a probe" to talking about Jobs complaining about "such a move"-- makes it sound like Jobs is objecting to the investigation.

      In fact Jobs is complaining about the behavior being investigated, I.E., Jobs is objecting to price fixing.

      Jobs has been vocal for a long time against attempts by the labels to try to forcibly raise online music sales.
      • Get the Message? (Score:5, Interesting)

        by AKAImBatman (238306) * <akaimbatman@@@gmail...com> on Friday March 03, 2006 @01:33PM (#14843549) Homepage Journal
        Indeed. The message seems clear enough to me: "Don't f**k with Steve Jobs."

        The music industry tried to get greedy by forcing Jobs' to raise prices on music. He pushed back and told them it would kill iTunes. The music companies banded together and tried to force his hand. Now, suddenly, the justice department is interested in allegations of price fixing. Coincidence? I think not.
        • Coincidence? I think not.

          George W. Bush owns an iPod Shuffle. Coincidence? I think not.

        • Coincidence? I think not.

          Given the fact that Apple lost its lawsuit against MS, the DoJ abruptly dropped its case against MS when Bush came in on his first term, and Al Gore is on Apple's board [apple.com], I find it unlikely that Jobs has much pull with the federal government. That said, Apple is a major force in the tech economy right now, so the feds might be willing to give Jobs more of an ear than usual simply because he runs a high-impact, successful company.

          • Speaking of politics an Apple:

            Apple really seems to be above the fray of politics. You mention Al Gore on the board of Apple, but Rush Limbaugh has talked about hi Powerbook on the air before and podcasts his show. Up thread from this message its noted that Bush has an Ipod.

            So heres what I think. Jobs' reality distortion field doesn't care what your political persuasion is. And back on topic, for those of us under the influcence of the field, we know iTunes = good, Record Companies = bad.
        • He pushed back and told them it would kill iTunes.

          I'm curious if he tried something more capitalistic, how it would work. Sell all the music for 99 cents, but give better placement to companies that agree to a smaller cut of the 99 cents, and drop any comapany that wanted more then 95 cents (or whatever they determine their minimum price is). Of course, I'm sure they are already selling the placements, you just have to tie it to compliance elsewhere.

          They are all playing hardball, Jobs controls the bigg

          • Jobs should have iTunes give not just the price, but also a list of how much goes to iTunes, the recording company, and to the artist.

            That would get the message across really fast.

             
    • Whether or not Jobs personally believes that it would drive people to piracy is moot. He has to know that that is what will get the RIAA's attention. So if he says that it will drive users to piracy, and others believe him, then the RIAA wouldn't attempt it, because then people will see that the RIAA wants people to pirate songs so that they can sue them. Again, this things might not be true, but it's all how it looks.

      Jobs says they will pirate if prices are fixed, people believe it, the RIAA does it
    • Heck, if the music companies were found to be colluding by charging $15+ per CD years back (they were), what are the chances they are doing the same now when the per-tune cost remains the same as distribution costs drop?

      If I may clarify this......The labels were sued not for the price of CDs, but for their minimum advertised price policy. Basically, when Best-Buy and Wal-Mart were using CDs as loss-leaders to bring consumers into the door, the labels tried to slow this with a MAP policy. The labels didn't t

    • My biggest fear though is the music industry gets "caught" and settles in similar fashion to their previous settlement, à la "giving away" free downloads (by the truckload) to local libraries, but restricting the downloads to non-selling tracks. Sigh.

      Aren't plenty of good songs non-selling ones anyway? I'd take one New Amsterdams download before ten Britney ones. Maybe that would open people up to some new things. Now, I'm not saying that all popular music is bad, because it isn't, but there's a lot
  • by mpapet (761907) on Friday March 03, 2006 @01:28PM (#14843497) Homepage
    I don't even have to RTFA to see that one.

    At what point does what the RIAA is doing constitute breaking some kind of law? Anti-trust maybe? Anyone have some insight into this?
    • by blibbler (15793)
      and it creates a monopoly-style pricing situation.

      Imagine if Intel and AMD got together and agreed to not sell CPUs for less than $500. Suddenly you would have to pay much more for a computer, and Intel and AMD would get much higher profit margins. As long as they keep to this agreement, people who want to run an x86 computer, don't have a choice but pay the extra.
      The reason the prices are so low for most CPUs at the moment is because of the competition between those two manufacturers.

      The suggestion is that
      • Or, imagine Microsoft and some PC manufacturers agreeing to always bundle Windows with every machine, regardless of whether a consumer wants to buy it or not.

        Wait...

        Tim
      • Imagine if Intel and AMD got together and agreed to not sell CPUs for less than $500

        Then IBM would resurrect its line of x86 CPUs and sell them for $3-400. The trick with price fixing is to make sure that your price is something the market will bear (if only just), and sufficiently low that you keep the barrier to entry in your market sufficiently high. 99p/track is very low from the perspective of a small-scale band. If you are only selling a few hundred tracks, it is difficult to break even (not cou

        • Then IBM would resurrect its line of x86 CPUs and sell them for $3-400. The trick with price fixing is to make sure that your price is something the market will bear (if only just), and sufficiently low that you keep the barrier to entry in your market sufficiently high.

          Actually all you need is a barrier to entry: copyright gives the RIAA the barrier that ensures that no one else sells "their" songs. As long as the RIAA retains copyright, they can retain control of artist's access to the fans, and they w

    • "I don't even have to RTFA to see that one.

      At what point does what the RIAA is doing constitute breaking some kind of law? Anti-trust maybe? Anyone have some insight into this?"

      Steve Jobs says all songs are worth $0.99, and it's the record labels that are being investigated for price fixing? I think we already know which monopoly is setting the price.
      • by hkgroove (791170) on Friday March 03, 2006 @02:41PM (#14844183) Homepage
        Steve Jobs says all songs are worth $0.99, and it's the record labels that are being investigated for price fixing? I think we already know which monopoly is setting the price.

        What on Earth are you talking about? iTunes is one company with a set price - they set the price there because it's affordable for consumers. Price fixing usually happens at level outside of the common view. In this case: Sony, Virgin, Arista (whatever other shitty labels) are being investigated because there is speculation they are meeting to set the base price of their product in order to make more money.

        iTunes might have an agreement with Sony for $0.25 per song, while Virgin iTunes has to pay $0.28 per song (Yes, numbers I'm pulling out of my ass). iTunes still sells each for $0.99 . The idea here is that the labels are potentially meeting to rise the price up to an agreed upon price (say $0.60 per song - another number straight from my ass) to increase their bottom-line and force iTunes to raise their end-user price as well. This would give more viability for consumers to go back to buying CDs at the artificially high prices and not be able to save money when buying online.
        • I know those numbers were just examples, but the record label's cut of a $0.99 download is already about $0.65. With that pricing the iTunes music store just about breaks even (Apple's profit is in selling iPods). The record executives think $0.99 is too low for a popular hit song, so they pressured Apple to raise prices and wanted more than $0.65 a song. Never mind that the labels are already making out like bandits at $.65 a song and $6.50 an album (for a $9.99 album off the ITMS). They don't make nearly
          • The vast majority of content from the majors is wholesaled at .70 now, not .65. In fact, several of the larger indies are also at the .70 rate. If retailers like iTunes drop the retail price any further they will actually *lose* money per sale. What the Justice Department is investigating has nothing to do with retail; rather it has to do with the possibility of the majors working together to make sure that the wholesale remains consistently at at least that .70 mark. I have seen the contracts... there is m
            • Thanks for the info about pricing. I find it hard to call it "wholesale", as if the labels were actually moving merchandise. It's more like sitting on their asses collecting royalty checks from songs they permit Apple to sell.
    • You, uh, DO realize that cyber-sex parody was born, played, and panned out within the space of 16 minutes in 1994, right?
  • by argoff (142580) on Friday March 03, 2006 @01:30PM (#14843517)
    I think the reality is that anti-trust problems and pricefixing problems are pretty much pre-destined anytime you have a monopoly, and when you have a government granted monopoly on copying and distribution (copyrights) it is a money back guarantee.

    It always amazes me to see all these people who are in-dignified about this when it's their own belief system in copyrights that pre-destined this to begin with.

    • Copyright isn't the problem. Copyright is what allows creative people to believe thier stuff won't get pirated as soon as it is exposed to the public. If you think DRM and licensing is a nightmare now, think what it would be like if there were no legal framework for ti to work within. Content owners could and would demand any kind of onerous restrictions to be sure they didn't get reamed by their own customers.

      The problem (among others) is high price. By demanding high prices in the face of easy alterna
      • Copyright isn't the problem. Copyright is what allows creative people to believe thier stuff won't get pirated as soon as it is exposed to the public. If you think DRM and licensing is a nightmare now, think what it would be like if there were no legal framework for ti to work within.

        I dunno... If copyrights disapeared tomorrow, people would still make movies, play music, and write books.

        In fact it might improve the industry by getting people out who are doing nothing but writing and producing crap just to
      • I saw a music cd of the soundtrack for one of the shrek movies retailing for more money than the dvd (sitting two shelves over) of the movie, which HAD THE SOUNDTRACK, properly integrated in to the movie. Did it really cost them MORE to take the music, NOT ADD VIDEO OR VOICES, shove it in a SMALLER container with a CHEAPER disc, and sell it to the SAME distribution channel? Christ. Sorry, that rant has been building up for a while :P
      • Copyright isn't the problem. Copyright is what allows creative people to believe thier stuff won't get pirated as soon as it is exposed to the public.

        Actually copyright creates a monopoly situation which by definition increases the price and decreases the supply. Copyright is unnecessary for creators - it is necessary for middlemen (who contribute nothing to creativity) and for companies/people who want to stop creating (but keep collecting checks). It's the middlemen and the lazy that argue for more and

  • Obviously (Score:5, Funny)

    by lucabrasi999 (585141) on Friday March 03, 2006 @01:32PM (#14843534) Journal
    Obviously, all of you just DON'T understand. In order to properly make a recording, not only to you need musicians and a producer; you need lawyers, agents, marketing reps, and dozens of other various hangers on. Without this huge support staff, then how else could you justify charging so much for a recording?
    • ... execs drive big cars (read: hummers) and man, it takes a lot of $ to fill those tanks...
      • Don't forget, those Execs each have at least ONE administrative assistant (back in the day, they were called secretaries). Think of David Spade in SNL (the recurring Dick Clark Secretary sketch).
    • This post is far more insightful than funny...
    • And don't forget the cost of having several members of Congress on your side ... lobbying, bribery, overseas travel, etc.

    • "Obviously, all of you just DON'T understand. In order to properly make a recording, not only to you need musicians and a producer; you need lawyers, agents, marketing reps, and dozens of other various hangers on. Without this huge support staff, then how else could you justify charging so much for a recording?"

      It's sad that the people who watch Love Monkey have a better understanding of the music industry than most people on /.
    • In order to properly make a recording, not only to you need musicians and a producer; you need lawyers, agents, marketing reps, and dozens of other various hangers on.

      Not anymore [tunecore.com] :-)

  • by MLopat (848735) on Friday March 03, 2006 @01:33PM (#14843550) Homepage
    So for what your government is spending your money on in running this inquiry, customers could sure have alot of free downloads. How much will this investigation cost? $10mil, $20mil? At the end of the day, you're getting screwed both ways -- paying for your music, and paying a government that keeps changing the copyright policies in the US to favor large corporations.
  • by Errandboy of Doom (917941) on Friday March 03, 2006 @01:34PM (#14843551) Homepage
    If you want to stop anti-competitive practices, digital distribution needs to adopt the rules of radio:

    Download services should have the right to sell any digital recording now, and compensate artists afterwards. There should be nothing "exlusively on iTunes" (or eMusic for that matter).

    Opening competition prevents unfair business practices (to some extent, anyway, worth a shot!).
    • If you want to stop anti-competitive practices, digital distribution needs to adopt the rules of radio: Download services should have the right to sell any digital recording now, and compensate artists afterwards.

      Well, that might help with fair use if the RIAA can't specify what DRM is used, but I doubt that will ever fly. Also, this doesn't really address the abuse at hand, price collusion. What does it matter if Apple or Apple and 15 other places sell the song if the price of the song at all these pla

      • Here's a simple solution. Enforce the idea that copyright is a monopoly on distribution. If you have the copyright on something, you can describe the situations in which it can be copied but nothing else. You can not describe what devices people will use to describe it, what derived works people can make (although a license for a derived work may require a license for the original), or anything else.
    • "Download services should have the right to sell any digital recording now, and compensate artists afterwards."

      Interestingly, that's the law in Russia. As a result, Russian paid-download sites do a booming business, and the customer sometimes even gets to pick the encoding format.
    • "If you want to stop anti-competitive practices, digital distribution needs to adopt the rules of radio:
      "

      No, if you want to stop anti-competitve practices, force Apple to license fairplay. Problem solved.
  • Yeah, right... (Score:4, Insightful)

    by hellfire (86129) <deviladv@gmail . c om> on Friday March 03, 2006 @01:35PM (#14843559) Homepage
    This administration has already proven it's unwilling to pursue anti-trust litigation. They managed to bury the single most important anti-trust suit of our time to date, and microsoft is still doing what they do in the US, while the rest of the world cracks down on them.

    Personally I think this is just that, an investigation, with little backbone or political will to see it come to court. It would detract from their "war on terrorism" and listening in on all their warrentless wiretaps.
    • Indeed. Their attitude towards Microsoft, Sony, and the recording industry highlights how truly un-free market the Republicans (and Democrats) are.

      While the free market is a truly remarkable beast, it at times does fail. Even the most diehard libertarian recognizes that fact, and accepts that sometimes extramarket forces are needed to correct such failures.

      Corporations are often considered a free market aberration. They allow for monopolistic and oligopolistic situations to arise, and such situations are of
    • Indeed. They'll look into and conclude, "Nothing to see here. Move along." This will in turn buy the music industry about 10 more years before another investigation can even be launched...
  • Oh please. (Score:5, Insightful)

    by Fahrvergnuugen (700293) on Friday March 03, 2006 @01:37PM (#14843573) Homepage

    "piracy, a problem that has cost the music industry billions in revenues in recent years"

    Please, lets not jump to conclusions like this, ok?

  • Not fixed low (Score:3, Insightful)

    by 77Punker (673758) <spencr04.highpoint@edu> on Friday March 03, 2006 @01:39PM (#14843584)
    $1/song as iTunes charges (I think) is hardly a good price. $12 for 12 songs is the price of an average CD. The best deal I ever got was "The Essential Clash" with some 40 (good) songs for $13. iTunes can't deliver that.
    • It's much cheaper to pay $1 for "War" if you never plan to get anything else by Edwin Star. There's lots of artists that it's worth getting only a couple songs from. For entire albums I go to CDBaby.com-- I'm boycotting the big labels.

      Piracy isn't an option for me. It's illegal, and it keeps the major labels in power by keeping their music popular and gives them a leg to stand on in court.
      • I think what the parent poster is insinuating is that Apple is doing price fixing too. Not every song is worth $1.
        • But that is not "price fixing". That would be if Apple went to other online music distributers (such as Napster or any of the other "Plays for Sure" vendors) and made agreements with them that they should also have $.99 a track. It does not seem that they have. Apple has just made it policy that all single tracks sold through them are $.99. Competition is still allowed.
    • Agreed. Songs from allofmp3.com sell for about 30 cents a piece.

      If I pay a buck a license I want them to record that license for the rest of my life and let me redownload the song for free once a year to whatever media I'm using at that time.
    • I agree, it's too much money, and for a compressed version at that. Basically the music industry has said: "Hey, we've reduced our distribution costs considerably, and to celebrate we're going to give you your music with lower fidelity and DRM tacked on for the same price as you used to pay. Enjoy!"
  • Billions you say? (Score:5, Interesting)

    by MrPeavs (890124) on Friday March 03, 2006 @01:40PM (#14843599)
    "piracy, a problem that has cost the music industry billions in revenues in recent years.'"

    I don't buy it one bit. I always find comments/stats like this to be funny. How does that go again, 76.34% of stats are made up?

    Whos to say that Redneck Billy Bob would really have paid for that Britney Spears album that had the song that he pirated? Or that your great aunt Ethal, really would had bought that Iron Maiden album from that song she pirated?

    I think these numbers are grossly exaggerated and most likely, just made up. How are you to statically calculate a loss of a non-material product that you are "assuming" someone "would have" purchased legally?

    The RIAA and MPAA need to get knocked off their little soap box and stop preaching their bullshit. It isn't like they aren't making enough money as it is, those fat cats pockets just keep getting bigger. Not to mention, established artists are not hurting either. The people that are getting hurt buy this are the struggling artists, that the music industry is already raping as it is. But do you hear these stuggling artists bitching, no, most of them are not. Most of them realize the more people that can hear the music, the more fans they are going to get. True fans that will buy their albums and support them.
    • Problem is that the RIAA and MPAA have long standing numbers to back them up.

      Software companies have been making the wild-ass claims as to software loss value forever starting with Bill Gates and his famous tirade in the 70's.

      In order to upset the illigimate numbers that the RIAA are using you need to show that the software industry has been "full of shit" for the past 30 years as well.

      You and I know this as fact, but remember lawyers, government officials, and other rich people have been hearing this for s
  • by digitaldc (879047) * on Friday March 03, 2006 @01:42PM (#14843609)
    Do you think online music is priced fairly?

    No, and here is my suggestion:

    0.20 cents for each 128 kbps song
    0.40 cents for each 256 kbps song
    0.60 cents for each 320 kbps song
    0.80 cents for each lossless song


    The better the audio quality, the higher the price.
    • Shouldn't price also be concommitant with download size?

      So if a lossless song is 5x bigger than a 128kbps song, shouldn't it be approximately 5x more expensive?

      The lossless song should, at your rate, bet at least $0.99

      My own take is, after making my own DVDs and selling for a smattering of profit:
      $0.50 128kbps
      $0.75 256kbps
      $0.99 320kbps
      $2.99 lossless

      This doesn't follow that 5x pattern because I've included profit margins in each price category.
      • You know, you're absolutely right. I should spend 30 to 40 bucks to get an album's worth of music as lossless downloads. Hmmm...On second thought, I'll just go out and buy the CD for 13 bucks...
        • Better yet, I listen to groups that routinely create 20-30 minute epics. I love the way everyone assumes a "song" or "track" is 3 minutes of music.

          • Don't get me wrong, if I could get Ornette Coleman's Free Jazz or The Orb's Blue Room in lossless format for 3 bucks each, I'd consider it a bargain. At 40 minutes each, though, they'd probably be priced considerably higher.
            • At 40 minutes each, though, they'd probably be priced considerably higher.

              Not on eMusic.com. I signed up in November because I discovered they don't use DRM. Of course, the downside is that the big record labels won't deal with them, but there's more than enough stuff on there to keep me on a $20/month subscription which gives you 90 songs.

              Heck, 3/4 of what I buy isn't carried by services like iTunes or Napster anyway (although that's starting to change). eMusic is like a library (at least for me)... yo
        • Well, we're talking about, say, a 5 minute song, at 5mb a minute, or roughly 25mb of download.

          It literally costs less to buy a CD because the bandwidth of a FedEx truck is in the thousands of terabytes, while the bandwidth of the average online store is probably only in the hundreds of gigabytes.

          If you literally want lossless, you need to pay for it somehow. That either means driving 10 miles to a store (at 20mpg, $2.50 a gallon, 10 miles is $1.25), plus the actual CD for $14 including tax... or you stay at
        • Go, buy your 16-bit 44Khz CD. I for one would pay $3 a song for a 24-bit or higher 96Khz lossless song.
    • My suggestion is to get some high-quality music in the first place. This Britney Spears stuff isn't going to cut it..
    • Here's the problem: Take Apple's current 99 cents. Deduct what the label is getting (Why on earth should they decide to charge you less? Charity?). Deduct the fixed costs + marginal cost per artist Apple has with iTMS. The remaining ten cent is what you have left to play with when it comes to delivery. So your 128 kbps song costs 90 cents, and the lossless one 110 cents. Big fscking whoop.

      The problem is, your plan is a microscopic change in delivery and a huge slash in prices, given how many are willing to
  • Irony (Score:4, Interesting)

    by Datasage (214357) <Datasage&theworldisgrey,com> on Friday March 03, 2006 @01:44PM (#14843627) Homepage Journal
    Record Industry Buiness plan

    1. Fix your price at a point higher than what the market wants.
    2. Find comsumers who priate your music because they dont want to pay set price.
    3. Extort said persons for more than they would ever spend in a year for music.
    4. ???
    5. Profit

    They got it pretty good, they make money of those who acutally buy thier songs and make money of those who dont.
      1. Fix your price at a point higher than what the market wants.
      2. Find comsumers who priate your music because they dont want to pay set price.
      3. Extort said persons for more than they would ever spend in a year for music.
      4. ???
      5. Profit

      I think the missing 4. ??? is really:

      4. Get everyone else who even think of pirating the music to agree that pirating (and getting sued) is less costly than buying overpriced music... and cash in on huge numbers of music listeners' fear.

  • by microbrewer (774971) on Friday March 03, 2006 @01:48PM (#14843656) Homepage
    Chris Anderson the Editor in Chief and the Author of the soon to be released Long Tail Book posted this on his blog last year why the labels need variable pricing and the fixed priced model is flawed and the reason that Steve Jobs opposes it is because hes in the business of selling iPods and the sale of iTunes music is only a secondary part of his business .

    Could the labels actually be right?

    Ipod_although it's tempting to assume that the evil record labels are once again trying to gouge us, there's some sense in their latest efforts to get Apple to abandon it's one-size-fits-all pricing model. A New York Times article over the weekend reported on the ongoing struggle between the labels and Apple over its fixed $0.99 price point. The labels would like to sell most new music for more--$1.49/track?-- while older or more obscure tracks could go for less.

    There's plenty to like about variable pricing. For starters, it's almost always the most efficient way to maximize markets of disparate goods and customers. As Barry Ritholtz puts it:

    It's a basic rule of economics: goods that have elastic demand (i..e, non essential) are highly price sensitive. Further, any item easily available for free (albeit illegally) will have an even bigger response to price increases.

    Apple has argued that single-price simplicity was necessary in the early days of the service, when people were just getting used to paying to download music. But now, after 500m tracks have been sold, we're clearly past the early adopter phase. So what's the right pricing model going forward?

    Most accounts of the dispute between Apple and the labels have focused on the industry's efforts to raise prices, which are undeniably a big part of their plan. No surprise there. The research we've been doing for the book shows that within the bulk of the online music business--the top 100,000 downloads--only 3.5 tracks on the average CD sell. So the record labels are getting less than $3 in revenue (wholesale) from albums when the music is sold by the track. That's less than half the wholesale price of a CD (although with none of the physical costs of making and distributing a CD). The shift from an album model to a track model is indeed an alarming thing for the labels, and it's easy to see why they'd want to raise retail prices online as a result.

    But there's more to the story that that. The labels may be evil, but they're not (all) stupid. They--to say nothing of many of their artists--also see the virtues of dropping the price for lots of their music, too. For decades they've been playing with CD pricing models that range from cut-price classics to top-dollar boxed sets, and when freed of the overheads of traditional retail, they're likely to experiment more, not less. Although some of the more vocal commentators have encouraged Apple to hold the line at $0.99, there's a strong argument that introducing variable pricing might ultimately lead to a more consumer-friendly outcome.

    The reason is simple Long Tail math: there's a lot more music in the Tail than there is in the Head, and labels are generally more willing to experiment with discount pricing outside of the top 1,000 than they are with their hits. Those niches represents most of the music available today, measured by number of titles, and because they're only modest sellers individually they're less likely to create channel conflict with CD retailers, who tend to only stock the hits.

    Imagine, for starters, that Apple introduces a three-tiered band of pricing: $1.49, $.99 and $.79 (that would no doubt soon expand to include $.49, but below that the transaction costs of credit card processing and the like start to loom large). Tiered pricing--gold, silver, bronze--is still pretty simple for consumers to understand, yet it introduces a valuable new dimension of demand creation.

    Rhapsody, for instance, saw demand triple last year when it cut prices in half, to $0.49. And the average usage per customer in the all-you-ca
    • Music and movies are commodities and need to priced as such. Their respective inductries need to realize this.

      The problem with this variable pricing, based on the product's age, is that many (most?) people will simply wait until the price of the item drops to purchase it. Just like DVDs.

      How many people now skip seeing a movie in the theater and buy the DVD? How many of those wait 6 months after the DVD release for the price to come down?

      The movie industry still mainly counts only the opening box of

      • The problem with this variable pricing, based on the product's age, is that many (most?) people will simply wait until the price of the item drops to purchase it.

        Like me, for example. I won't pay more than $12 for a CD. I wait for CDs to drop below that price on half.com or whatever.

        Now, how is this a problem for the music industry? Are you suggesting it would be better if I just didn't buy the CD at all, or pirated a copy?

    • by DrJimbo (594231) on Friday March 03, 2006 @03:06PM (#14844507)
      Chris Anderson said:
      As long as prices can go down as well as up, I'm confident that market forces will eventually reveal the right set of models. And I'm even more sure they will confirm that no one model is right for everyone and every song.
      You raised some good points and almost had me fooled until I got to your last paragraph.

      The article was about a government investigation into possible monopolistic price-fixing in the online music industry. Your point seems to be that variable prices are a good thing assuming market forces are at work and there is no monopolistic price-fixing.

      The music industry in America is controlled by a monopoly called the RIAA (Recording Industry Association of America). Their monopolistic power has been increased by obscenely repeated extensions to the duration of copyright protection handed down by our corporate owned Congress.

      Are you claiming that despite this obvious monopoly and despite all of their monopolistic practices in the past, there has been some magic wand passed over the Internet so their monopolistic power won't be used there? Or are you claiming that since market forces are magically at work on the Internet, there is no need for this government investigation? Or are you making the circular argument that market forces are working because you've assumed that market forces are working?

      Even if we ignore assumptions about market forces, some of the particulars of your argument are not well thought out. Here is an example: you say:

      ... but below [$.49/track] the transaction costs of credit card processing and the like start to loom large ...
      If someone were to offer to sell me legal, good quality music at say $.10/per track, I'd be willing to give them a small deposit (say $5 or $10) so that they only have to charge my credit card after every 50 or 100 downloads. This solutions actually cuts down the credit card overhead by a factor of 5 or 10. I find it hard to accept you as a credible proponent of "long tail math" when your recommended price points ignore such obvious and simple solutions.

      I agree in theory that variable prices in a free market could be a good thing. But I strongly disagree with your (perhaps unstated) assumption that our current system is a free market. The obscene copyright laws and the RIAA's iron-fisted monopolistic control make it anything but.

  • by Anonymous Coward
    No more cd media costs.
    No more cd container costs.
    No more printed liner costs.
    No shipping costs.
    Drastically reduced distribution costs.

    And it ends up costing me more than ever to download a wrapped physical CD worth of music that has been shipped to a retail location.

    Something is not right here.
  • Why not look at CD pricing? They have been fixing this crap for decades. Why do we NEVER see market aberrations? We should see the occasional new CD come out for $5.00, right? Everyone involved would still make money, so you'd figure there would HAVE to be a label out there trying to undercut the others this way--at least an ATTEMPT.
    • I bought the second Black Rebel Motorcycle Club CD the week it came out for $5.99

      Unfortunately, it was worth every penny.

  • Mr Jobs suggested such a move would drive owners of Apple's iPod, the hugely popular digital music player, to piracy, a problem that has cost the music industry billions in revenues in recent years.

    OK let me fix that for you.

    Mr Jobs suggested such a move is a problem that has cost the music industry billions in revenues in recent years.

    THERE! :D (Don't thank me, it was my duty)
  • Note the labels set wholesale pricing, not retail pricing. This means Steve Jobs is the one who determines tracks will be $.99. There are, in fact, different price points for the same music if you go to other legitimate download stores. For example, Walmart.com charges $0.88 for the same tracks iTunes has.
  • The bad editing of the post suggests that Jobs says the U.S. investigation is a bad move. In fact Jobs was saying that the attempts of record companies to pressure Apple to selectively raise prices on songs was bad.
  • I don't get it.

    ITMS just passed 1 billion downloads after being in business a few years. That's barely $1B to Apple - as revenues. The major labels' cut can't be bigger than ~ $100M each. That's for online sales for a few years. Contrast that with Billion-dollar CD sales, merchandising, etc, per annum for any given major label.

    Sounds like they're either fighting over peanuts or they're playing the long view & hoping this will ramp up to some real numbers years down the road.

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