Recording labels, Apple divided over pricing.
I hate to do it, but I have to side with the record labels when it comes to their current dispute with Apple over the pricing of tracks in iTunes. Record labels want to charge more than the current $.99 cent ceiling for new releases and hot tracks while Apple wants to hold the line at $.99 cents.
Apple’s argument is that record labels already make more per song via iTunes than they do by selling a CD of the music. Because distributing music via iTunes reduces marketing and packaging costs, this is undoubtedly true. Apple and CEO Steve Jobs state that music executives are just being greedy by asking for the price increase.
That’s probably also true. But it’s their job to be greedy, or at least to seek the best return for their investors. If they can produce a better return, it’s their duty to try and do so. So I have no problem with that.
The other argument by opponents of the price increase is that it will drive people to stop buying music online and return to illegal downloading services. This is also undoubtedly true. Some people will find that they do not want to pay $1.49 or $1.99 for the latest release and those people will probably turn to file-sharing networks to get what they want.
But some people won’t. It’s already been shown that people will buy music online at a given price point. Obviously a lot of people feel comfortable with the $.99 cent price point. The $.99 cent threshold is an important psychological barrier and it has proven to be a price point that the market for online music downloads will bear. If the price for that market were to be raised $.50 cents across the board, the market would probably be damaged and overall demand would decrease.
That’s the thing about the online music download business, though. It’s not just one market. It’s a collection of a million little markets. There’s a market for each artist, each album and each track. Some tracks are going to be more popular than others and, on those tracks, it makes sense to raise the prices. Demand for that track might be slightly reduced, but if the track is popular enough, I suspect you’ll find that many people will still be willing to make the purchase. Prices for ringtones are at or above $2.00 dollars and people are still buying like crazy, even though they aren’t getting the entire song.
The point is that it’s up to the market to decide what price point the market will bear. All Apple is doing is creating an artificially regulated market. Those artificial regulations may keep demand high, but they also decrease the incentive for the record labels to embrace the new business model. Who is to say how big the total market might grow if the record labels were spurred to digitize their entire collections? Maybe we’d see a more rapid end to the CD and a more willing embrace of online distribution.
Of course, the one problem in this is competition, in that there isn’t any, at least not between the music labels. New York Attorney General Elliot Spitzer and the U.S. Department of Justice are conducting investigations into possible collusion between the music labels in regards to the pricing of music downloads. There is $.79 cents per track downloading to be had, but $.99 cents seems to be an awfullly widely accepted price per track. If the market is opened up to true competition, we could see that prices per track fall rather than rise, but I don’t think so.
For now, it seems that Apple is still in control of pricing. They may not be the only game in town, but they may as well be. I don’t know if you’ve shopped for MP3 players of late, but the iPod is far and away the best option. Other MP3 players may have similar feature sets, but no other MP3 player has the after-market accessories availble to the iPod. It’s the accessories that set the iPod apart from the rest. As long as the iPod is king of the hill in the digital music player world, iTunes will be top of the heap when it comes to digital music downloads. As long as that’s the case, Apple will have significant control of the pricing.
In the end, I think the market for some music could support higher prices without sending people screaming back to digital piracy. $.99 cents seems to be a sweet-spot price for most music, but it’s probably not the only sweet-spot. As a consumer, I am happy to see Apple toe-the-line over pricing, but I wonder if there aren’t benefits to letting the markets set the prices for digital music.