After 9 Months of ‘Variable Pricing’ … Music Sales Are Down

Image Courtesy of HardwareZone

I think we all recognized the REAL intent last year when Apple finally caved to the music industry to allow for a new price structure in exchange for getting the same DRM-free music they were already giving everyone else: it was to make more money from every type of consumer. Anyone who didn’t get the message that day saw the truth soon enough – like my kids who instantly saw that a $15 iTunes Gift Card was worth about 4 songs less than before. Well, it turns out that folks are none too happy – and are voting with their wallets.

The impact of the new prices was immediate: the majority of music people cared about quickly sold for $1.29 – and this was regardless of age, making instant liars of the music industry officials who spoke of only recouping the higher costs from the newest artists. I saw that when my kids were buying stuff that week and were getting older music from artists they liked, including stuff from the 80’s and 90’s.

Since I’m a jazz fan I checked that genre, and sure enough found that the #1 jazz song, Louis Armstrong’s 1968 recording of ‘What a Wonderful World’ was now $1.29. There was supposed to be balance in terms of the music that went to $0.69, but I spent some time looking and saw that nearly everything I could find – and I like obscure stuff – was either $0.99 or $1.29.

As I mentioned, it seems that no one is happy with the change, and that is reflected in the year-end earnings of companies such as Warner who depend on Apple’s iTunes for the bulk of their digital music sales:

Warner Music Group (WMG) said this morning that it has seen unit sales growth at Apple’s (AAPL) iTunes decelerate since the price increase: Industrywide, year-over-year “digital track equivalent album unit growth” was at five percent in the December quarter, down sequentially from 10 percent in the September quarter and 11 percent in the June quarter.

And since iTunes sales make up the majority of Warner’s digital revenue, growth is contracting there, too. In the last quarter, digital revenue at the label was up eight percent compared with a year earlier, when that number was 20 percent.

The fact that sales still increased, albeit at a much slower rate, allowed Warner to spin things as a maturation of the market rather than customer reluctance to pay the higher price.

I have always thought that Apple hit the sweet spot at $0.99 – pirates would still steal music, but those who wanted to pay were easily able to justify that price. The boom of sales with Apple becoming the largest music retailer attests to that, and the subsequent decline only shows that the greed of the publishers is costing them sales.

So what do you think about all of this? And what does it mean for the growing ebook market? Chime in below!

Source: AllThingsD via Macworld

Categories: Music Diary, News


6 replies

  1. It’s way too difficult to judge whether this variable pricing led to a “decline in growth”.

    First of all, you cannot sustain increased growth forever. At some point, the market will saturate. iPods themselves are a perfect example – the growth in sales has definitely declined.

    Second, this is a single studio. It’s possible that they had a crappy catalog of new releases this quarter.

    Third, more and more of us are getting music from online streaming services like Pandora, and perhaps that is eating into sales of individual tunes. Perhaps people are tired of adding to libraries and instead want to just listen with some serendipity to what Pandora brings them.

    I’d prefer that we judge whether this is a trend after hearing from the other labels, and after another few quarters to see if this trend continues.

  2. I wonder about market saturation, too, but that seems like a pretty abrupt slowing.

  3. People like predictability, even if they’d be better off under a variable pricing structure; and it sounds like they weren’t better off under a variable pricing structure which makes it worse.

  4. @doogald – you are absolutely correct. There is a famous saying ‘correlation doesn’t mean causality’. And even here we don’t have enough data for a correlation.

    I think it is interesting, though … Sony didn’t separate out anything yet saw only a 2% increase in their music segment despite having some of the largest sellers of the year in their catalog.


  1. Allistair Lee
  2. Vincent Bragg