iTunes Pricing Round 2

by Janet Meyer Apr 25, 2006

So far it looks as though Steve Jobs is going to stand firm on iTunes pricing. A couple of weeks ago I wrote that major labels want Apple to change to variable pricing, with some people suggesting it was a done deal. The New York Post Online Edition reports that deals with four major music companies (Universal, Warner Music, SonyBMG, and EMI North America) expire in two months. Various executives stated that Steve Jobs has remained unconvinced that their plan is best.

Jobs is widely quoted as saying that record labels make about 70 cents per download, which is more profit than they make selling CDs. Multiply 70 cents per download by one billion downloads. To me this seems to be a significant amount of money.

Apparently the labels don’t agree. According to an article in E-Commerce News, Warner Music Group CEO Edgar Bronfman, Jr. thinks that Apple should give labels a cut of its iPod sales. Bronfman also says that single pricing is not fair to artists. (New York Post Online Edition). E-Commerce News, however, quoted Envisioneering Group Director Richard Doherty as challenging the labels to show what part of this profit they pay to artists.

Most variable pricing models suggest selling popular music (labels like to call it premium music,) for more than 99 cents, but lowering the cost of older music to 79 cents. In theory, iPod users could end up paying less with this model. All they have to do is wait for the music they love to fall into the “older music” category.

Then again, if they don’t want to wait and don’t want to pay the extra price, they can just go to another site and download it for nothing.

Bronfman talks about unfairness to artists, but I’m unclear how tiered pricing benefits the musicians. Would they get paid less for older songs under this pricing system? It’s clear that those on top of the charts (those who are already raking in the profits) could benefit, but only if people keep buying in large numbers and only if the increased price reflects increased royalties. It seems in tiered pricing, less popular artists would get paid less. Maybe Bronfman thinks people are more willing to buy from older artists if the price is right.

Some are questioning the results of this conflict on the music industry. If the labels want to stand as firm as Jobs, they could pull their music from iTunes and work with other services. Of course, with iTunes dominating the digital music market and free download sites in abundance, this would be a risk.

It seems a good possibility that no decision will be made when the contracts are up. In this case, labels could possibly pull their songs whenever they want. This could be problematic to Apple, but it also poses risks to the labels. They lose sales every time they pull a song.

It’s hard to believe that iTunes is only three years old. Prior to iTunes, the music industry was fighting a losing battle against internet piracy. iTunes proved that consumers are willing to pay reasonable prices for their songs and helped an industry that had been struggling with a five-year decline in sales.

The single price system looks likely to last for awhile longer. The question might be how much longer. If iTunes continues to dominate the market, Steve Jobs should be able to retain the upper hand.

Do you think there will be a move to tiered pricing sometime in the future? It might just take one upstart company with good marketing and good music delivery to upset the Apple cart.

Personally, at this time I see a system that helped the major labels. Pricing is right and the variety of songs is right. This is proven by the number of purchases in such a short time. Labels want to experiment to make more money. Maybe they should instead focus on increasing sales through good music to make more money. Maybe they could even introduce variety into their labels.

Tiered pricing has been an issue for at least the last year. It likely won’t go away. For now it appears that iTunes will win again, but what about the future? Do you think the conflict between major labels and iTunes will eventually force changes? If so, what do you think will happen?






  • Few beat the drum loudly enough about the cut the artists get from ITMS sales - my guess is it’s a few pennies or nothing at all, after the “expenses” are deducted from their cut. It’s been demonstrated time and again that the labels really put the screws to artists in their contracts. The only way they make money is aftermarket items and going on tour - they make squat on downloads and CDs. Perhaps this explains why the Stones, all in their sixties, still tour. Once you sign a deal with the labels, they own your stuff forever.

    tao51nyc had this to say on Apr 25, 2006 Posts: 45
  • I love what you said.I hope the Stones are touring just because they love making music together…but you’re right, the artists make hardly anything on the ITMS sales or CD sales. People always think of musicians as making millions, but they forget about all those talented people who are either just starting out or are not on the list of most played, most popular artist.

    Janet Meyer had this to say on Apr 25, 2006 Posts: 36
  • I’m still waitng for the price of CDs to come down. The recording industry made that promise years ago. Do you really think anyone believes they give a hoot about the artists’ cut?

    cloudwall had this to say on Apr 25, 2006 Posts: 21
  • Unfortunately, it’s not just labels that don’t care about artist cuts. I know people who don’t have a problem with free downloads because they never stop to consider the musicians who are trying to get a start in the business, or those who are making a living but are not at the top.

    I’m glad there are some of you who do care about the artists.

    Janet Meyer had this to say on Apr 25, 2006 Posts: 36
  • I just think the Record Labels are just being greedy.  As you’ve already said in your article they are making 70 Cents from each 99 Cent track, along with the fact that the introduction of iTunes and Napster cutting down on internet piracy, you’d think they’d be happy with the way things are.  They’re better off the way they are now, but yet they still aren’t happy?  It all boils down to pure greed.

    Aaron Wright had this to say on Apr 25, 2006 Posts: 104
  • Apple is against tiered pricing for the same reasons prices on iPods and Macs are set with a “decree from Cupertino”. ;-] Each purchase should be a no-brainer.

    “Do I really want to buy this Britney’s song for 2 dollars? Maybe I should buy it 2 months later for 1 dollar? Maybe I don’t need it at all? Charging 2 dollars for a song is a rip-off!!! I guess I need to P2P it…”

    His Steveness doesn’t want it. Does anybody really believe that majors could pull their songs from iTMS? They may be stupid, but they aren’t that stupid. If they really did that, people who buy music at iTMS everyday would find out that there are many small labels that record really good music (not that crap majors think people like).
    So prices will stay the same for a long time. (However, I think they should improve sound quality - keeping prices the same).

    Frosty Grin had this to say on Apr 25, 2006 Posts: 33
  • I may be the only one, but I want tiered pricing OR true single-price songs. There are many songs in iTunes that are available for purchase *only* as part of an album because they are extremely long (say, 14 minutes). This is because they believe $.99 is too small an amount for a 14 minute song. If there was truly a single price, I could buy that song for .99. If that is not an acceptable solution, I would accept a tiered pricing structure and pay a couple of dollars for a longer song rather than buy the entire album.

    Devanshu Mehta had this to say on Apr 25, 2006 Posts: 108
  • Somehow I doubt labels care about the success of the iTMS if you catch my drift. If they can get it to sink, they could enforce “better” deals with the next thing, they think. Greed is beyond measure.

    Bad Beaver had this to say on Apr 25, 2006 Posts: 371
  • Good points from all of you. Devanshu, I’d prefer the true “one price” over paying more for longer songs. It keeps things simple, and nobody really loses anything.

    I am extremely impressed that music lovers recognize the responsibility of paying for music even if they could get it for free. I used to be more cynical, didn’t think people would ever go to a paid model. Steve Jobs proved me wrong.

    I hope Steve Jobs continues to get his way. For now the labels probably don’t have much option, but that could change if the day comes when iTunes no longer dominates the market.

    Janet Meyer had this to say on Apr 25, 2006 Posts: 36
  • But the single ingredient that everyone is missing here is the iPod.  The music labels won’t pull, as they know it would be disatrous for them.

    People buy music from iTunes to listen on their iPods (okay, not everyone, but you’ll see my point).  People won’t be able to listen to music from any other online store on their trusty iPods.  Pulling from iTunes would mean an immediate return to piracy because pirated tracks can be used on iPods, and Napster or Yahoo’s tracks can’t.  The only legal music that can be played on iPods is from iTunes (or or as they don;t have any drm on their tracks).

    To pull from iTunes would be forcefully plunging themselves back into the dark hole of people stealing music rather than buying it.

    And as a side note, Apple having to give a cut of iPods to the labels is just ridiculous.

    e:leaf had this to say on Apr 25, 2006 Posts: 32
  • and are NOT legal music services. Contrary to what they claim, the labels and artists DO NOT get paid. Current Russian law is allowing them to run these sites. But they are worse than P2P, because they’re charging money and claiming it goes towards the artists. My company and our friends and affiliates have been trying to close these sites down, especially
    Just needed to get that off my chest, e:leaf, because you suggested they were legitimate services.

    I think Devanshu makes a brilliant point here. Aside from the fact of greedy labels and everyone assuming they want to change pricing so they can charge more, there is a big factor in the iTMS in regards to length of songs. I’ve come across more than one song where you can listen to the entire length of it within the 30 second iTunes preview! Are you going to pay 0.99 for a 22 second piece? Um, no. And it works the other way too, with extremely lengthy pieces. I wouldn’t mind paying $1.99 for them rather than being forced to buy the album for it. I really don’t think major labels are stupid enough to suddenly jump all their prices up to $2 or $3 each, if given the opportunity. They know just as well as Steve Jobs keeps pointing out: the current pricing is a good price to lure people from piracy. But there also are isolated circumstances where pricing does require more flexibility.

    Luke Mildenhall-Ward had this to say on Apr 26, 2006 Posts: 299
  • “ and are NOT legal music services. ... Current Russian law is allowing them to run these sites.”

    Isn’t it a contradiction? ;-] I always thought if a law allows something then it’s legal…

    Frosty Grin had this to say on Apr 26, 2006 Posts: 33
  • Well P2P is also avoiding the law and technically being legal, but nobody refers to it as such.

    Luke Mildenhall-Ward had this to say on Apr 26, 2006 Posts: 299
  • It’s only legal in Russia but they’re selling to people outside of Russia as well, where it definitely isn’t legal. F***cking internet loopholes need sorting out.

    Luke Mildenhall-Ward had this to say on Apr 26, 2006 Posts: 299
  • Legal… Illegal…
    Relax and have fun.

    mp3 download had this to say on Dec 04, 2006 Posts: 1
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