NewsWeek: Apple iTunes prices should be lower, music labels ‘just don’t get it’

“Last Wednesday brought two pieces of news in the ever evolving digital music wars. On the positive side, Apple CEO Steve Jobs was singing ‘The Anniversary Song’ in celebration of the first birthday of his iTunes store, by far the biggest emporium of legal song downloads. On the other coast, the Recording Industry Association of America, the lobbying arm of the major labels, crooned its old favorite, ‘You’re in the Jailhouse Now.’ It sued 477 more music lovers for copyright infringement, this time focusing on college students,” Steven Levy writes for Newsweek.

“Online prices should always be much lower than physical CDs. The economics of downloading favor high volume. CDs have to be pressed, warehoused and shipped, but in the online world, you transmit a file to the vendor and just collect money. When a super popular artist like Norah Jones emerges, forget about convincing a hundred thousand people to download it at $13-get a million people to make the mouse-buy for five bucks. It’s nice to sell 100,000 Norah Jones albums online at $13, but even better to sell 2 million at five bucks a pop,’ Levy writes.

“Isn’t it obvious by now that by accelerating the momentum of online stores like iTunes (and also promoting subscription services like Rhapsody, which can potentially deliver huge royalties to the industry) the industry will move quicker to a model from which it could launch hundreds of new ways to make money? (Jobs himself suggested one: sell out-of-catalog music now rotting in storage rooms for low prices,)” Levy writes. “Isn’t this a better way to move towards the future than suing college students? How many times does the same chorus have to play before music execs can hum along?”

Full article here.

28 Comments

  1. is this continues, the death of online music business model is dead and free downloads will proliferate even more. the RIAA is killing itself.

    Apple will just adapt a different model – a model of where the market will be.

  2. The sad news is that Apple will get the black eye for the albums that are above the $9.99 price point, even though it is the greedy record labels driving the cost, NOT Apple.

    The fact that the music can go from studio to online store without ever going to a physical medium is enough to warrant lower album costs, not higher. There is very little overhead with this scenario. It only emphasizes the record label’s greed. And sadly, the artist still doesn’t get their fair share…

  3. I think a lot of people realize that Apple is just like another store. They are no different if you bought your music from BestBuy. They don’t control the prices and they’ve made it very clear they make virtually nothing off iTunes. On top of that, with the RIAA sueing everyone and their mother (literally!!!), I think a lot of the blame will still fall with them no matter what they say.

  4. I would buy full albums instead of individual songs if the price were $4.99. I think alot of other people would also.
    Again, it’s a question of the prediction of increase in volume. Noone will know unless somebody tries it and has a good marketing plan. Why not Apple/record companies?? Russia is taking a stab at ITMS with their low prices…soon people will find a way to get downloads cheaper from other countries.
    That is why ITMS Worldwide needs to get rolling soon.

  5. Newman,

    I think you’re right. I’m not sure if prices dropped down to under 5, that the volume would increase to offset the price drop. From 100,000 to 2million? That’s a big jump. The right price would be 9.99. How am I supposed to buy the Norah Jones CD from iTunes at $13 when I can get it from Best Buy/Target/Fry’s at less than 10? Something just doesn’t make sense…..

  6. Newmanstein, with the so-called “legal” downloads of music from Russia at $0.03 per song, even the iTMS may not be able to survive. At that cost you are basically getting the download for free (100 songs for $3). The same factors that are hurting the traditional music industry will adversely impact the legal download industry.

    In response to others who are complaining about the relatively high cost of legal downloads – I tend to agree. But a large number of people have been through several cycles of music over the past few decades (LP’s and singles, 8-tracks, cassettes, CD’s and AAC/MP3/WMA/etc.) and have had to repurchase the same music library once or twice in the process. At least the current format has the potential for being bought just once over a lifetime unlike the scratched LP’s and CD’s or mangled 8-tracks and cassettes.

  7. Maybe once ITMS has reached a point where it is a serious rival in numbers for traditional CD sales they could consider cutting out the big labels. That would be so cool. Power to the people and the artists!!! Not to the big labels who are notoriously slimey.

  8. Someone mentioned that Apple makes “hardly anything” from the music store. Not true, though this is repeated often. Apple makes a nice profit from the Music Store. Apple makes a build-your-company-around-it profit from the iPod. The store pays for itself, and brings a tidy sum on top, just not enough.

  9. A related issue is the reluctance on the part of the labels to embrace single sales over albums. I’ve spent far more money in the last year on music (mostly singles) compared to the entire five years prior. The album format is dead along with CDs – embrace the single already. If the artists are good they will sell lots of singles. The upfront costs should also be less – not having to produce an entire album – maybe just a few singles.

  10. RE: “cutting the big labels out”, you can bet that Steve had to agree to NOT cut the big labels out in order to get them on board with iTMS. The big labels still hold most of the cards in this game and they will probably be able to dictate any terms they like with iTMS.

    The Russian music download sites are the key to this I think. The big guys may be forced to give Apple better terms in order to combat this new threat. I doubt that they have any legal recorse in the matter.

  11. The labels will not lower the price of online store purchases because there is still a segmant of brick & mortar stores and still a huge market for physical CDS. Until downloads match those #s there will be no price change. If Apple can hold on to be a hugely domant player (50% +) in the download market when that time comes, then SJ will have the clout to do as he pleases and maybe get some lower prices.

  12. King Mel I doubt that a lot of folks will end up using the Russian download services… As a personal note I wouldnt give my credit card number to a shady Russian website designed with the express purpose of circumnavigating international law… but thats just me

  13. “The right price would be 9.99. How am I supposed to buy the Norah Jones CD from iTunes at $13 when I can get it from Best Buy/Target/Fry’s at less than 10?”

    Why should you have to pay $10 to buy it online in a restricted format when you can get the full, unrestricted CD for less than $10 offline? No, $9.99 is still much too high considering 0 distribution costs and “rights” that can be taken away at any time (see below). But the prices won’t change until the RIAA stops taking practically half of every $1 for it’s own “costs”.

    “At least the current format has the potential for being bought just once over a lifetime unlike the scratched LP’s and CD’s or mangled 8-tracks and cassettes.”

    I would like to agree with this, except the RIAA (via the iTMS Terms of Sale) has decided it can change the terms of your downloaded material at any time. Witness the recent change from 10 ‘soft’ burns to 7 ‘hard’ burns. That’s taking rights away that we paid for, after we paid for them. In any other industry that would be called fraud.

    What is it going to look like in 2 years? 1 burn per song? Even without raising prices the RIAA is slowly strangling the legal download industry. Increasing prices will just hasten what is already probably inevitable – unless the RIAA stops and wakes up.

    Legal questions aside, sites like allofmp3.com are the future. I’ve tried it out and it is quite amazing. For most material you can have it encode to your specs on the spot – from MP3 to WMA to OGG in almost any bitrate you can think of. Very new material can also be encoded into lossless formats (Monkey’s Audio, FLAC, or full-size WAV files). At 2 cents per MB for the lossless, you can end up spending $5 or more on an album – more than enough to pay the artist and for the bandwidth.

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