I have long since accepted two things as fact: that I like music very few others like and many find intolerable, and that I have been an Apple supporter since they made the first computer I bought with my own money (Apple ][+ in ~1980). And while there were many years that found me as a PC-only person looking at my Apple hardware as something from the past, I was there at the release of the first iPod along with my new G4 Powerbook ready to believe that with the iPod and OS X Apple was ready to lead once again. I have also always been strongly anti-piracy, so I applauded the opening of the iTunes store and hoped it would convert many of the vast sea of music pirates into customers willing to pay for the art they were enjoying. The value proposition was compelling – $0.99 per song, $9.99 for most records (double-cds and box sets costing more, of course) – and it led to a revolution in the music industry. Apple went from people saying ‘why would ANYONE buy for $1 what they are currently downloading for free’ to Apple becoming the #1 music retailer in the US bar none.
When the iTunes store started, the music industry was reeling – they had continually backed away from the original promise of delivering more value for a lower price they had made when CD’s first came along. Of course, the continuing explosion of technology with lower cost and greater capacity and functionality led to the rapid ascent of digital piracy – we don’t need to belabor that point. However, the way the music industry dealt with that threat was not through a head-on competitive approach, but rather by making criminals out of its’ potential customers – seeking to recoup through litigation and legislation rather than stem piracy at its’ core through sound business analysis and modeling. This is important because that is what they got through Apple’s iTunes store (and, of course, other music stores) – places where customers were treated with respect and a sense of value and fairness was honored. Sure there have been debates about DRM, but without the DRM the iTunes store would never have gotten off the ground – it was yet another way for the industry to exert what they saw as ‘intellectual property control’ but customers recognized as ‘we see you as a potential thief’.
From seemingly the very moment that it was clear the iTunes store on the Mac and PC would be a resounding success, the major record labels started putting price pressure on Apple to raise prices on songs and records. And while Apple has been able to stave off most of the pressure, little by little things have changed – first some new releases were priced as high as $12.99 for the CD, and then in what can be seen as a quid-pro-quo move, Apple introduced ‘iTunes Plus’ songs that were encoded at a higher quality and DRM-free but cost $1.29. All the while the pushback against DRM increased and a number of MP3-store competitors arose to challenge iTunes, most notably Amazon and Walmart. In the particular case of Amazon one thing is notable – they appear able to offer the same music at a slightly lower price than iTunes, in spite of the fact that Apple has been transparent about its’ pricing structure and the fact that it makes little profit on running the iTunes store, depending on more as a means to sell iPods. Since Amazon has no such luxury and has similar infrastructure concerns, one popular opinion emerged – record companies are offering Amazon a sweeter deal than Apple in order to leverage back control of their product. They don’t want Apple telling them they can’t get the same $16 – $20 for a single CD in digital format that they (try to) get at music stores. More on that later …
Back in January Apple finally caved in to the industry pressure – they were getting the option to offer all music DRM-free and with higher quality, but in exchange they had to cede on price. Top hit songs would now be $1.29, the core bulk of the library would remain $0.99, and a significant chunk of less in-demand music would drop to $0.69. That new pricing model went into effect on April 7th. Since then a number of sites have reported about the change, including The LA Times, Engadget, CNet News, Wired, The New York Times, ComputerWorld, The Washington Post, CNet, and The Register. A newly published article at Information Week also states that the winners in this whole thing are ‘record companies’.
I was wondering – as were many – exactly how MY music would be impacted? I mean, I don’t exactly listen to anything that would be considered ‘popular’, so I didn’t expect to see an impact. So I looked at a few of my recent purchases. ‘Watts’ by Jeff ‘Tain’ Watts was $8.99 at Amazon and $9.90 at iTunes, and remains the same. ‘Beyond Quantum’ by Anthony Braxton was $9.49 at Amazon and $9.99 at iTunes, and remains the same. In fact, each of my last 10 purchases – all in the Jazz genre – were identically priced. Which is nice for me. One interesting note – the #1 song in the Jazz library, ‘What a Wonderful World’ by Louis Armstrong, is now priced at $1.29. This despite the fact that the song is more than 40 years old! That was the only $1.29 song I found, even with the recent releases from the very popular Diana Krall and Chris Botti.
Being frugal, I was hoping to find some $0.69 bargains on favorite artists. So I looked at all songs from artists such as Miles Davis, Charlie Parker, Pat Metheny, John Scofied, and several others, and the only song that wasn’t $0.99 was a minor Charlie Parker song from a very large Verve collection set. Including the Satchmo song, that means that in my check of over 2500 songs there was one price increase and one price decrease.
While there was tons of reaction to the new variable pricing scheme, something happened on April 8th that wasn’t immediately expected – Amazon and Walmart raised the price on many of the hit songs in their own MP3 stores. Some of the web sites listed above have gone through song lists comparing prices and found that Amazon has fewer high priced songs than iTunes, but both sites have moved many of their top songs to higher pricing. It is unclear whether this is driven by higher prices demanded by record companies or an internal decision to recoup some profits lost by offering many CD’s at reduced prices.
One thing seems clear – record companies felt they gave too much in terms of pricing with the initial offering, and have been working their way back ever since. While the last decade has seen the music industry take a massive hit in terms of profitability, they haven’t yielded in terms of price. Indeed, whenever presented with a choice between what looks like greed and something that would earn them customer goodwill, they have chosen the path of greed every time. I certainly believe that the price of $1.29 is no accident – it was calculated based on some set of probabilities and assumptions of sales lost to non-buyers and piracy compared to increased revenues through added profit per unit sale.
My fear as an anti-piracy advocate is that the music industry is overestimating the loyalty of consumers. I am sure that just as iTunes found that $1 a song / $10 a CD converted millions of pirates into legitimate customers, there is a tipping point in price at which folks will start feeling once again like they are being gouged and stop buying from Amazon / iTunes / Walmart / Rhapsody. It won’t happen all at once, but as a slow process that will see a gradual decrease in the ramp of digital downloads. There has already been a reported slowing in the growth, but it is unclear if it is due to the prior price increases or disdain for DRM or simply tightening family budgets. Perhaps we will never know. For know there is one thing we do know – higher prices for digital music have arrived, and they are unlikely to go away any time soon.