Apple raises prices as music sales slide

Yay, Apple granted my Christmas wish! OK, it was a little tardy, but that's not much of a surprise. Nor was the announcement by Apple that, in tandem with dropping DRM from all its tracks by the end of March (Universal Music Group, Sony BMG and Warner Music Group's labels had been the main holdouts), it would start charging higher prices for hits and lower prices for, err, the great mass of tracks that not many people buy.

The only real surprise was that Apple would begin selling DRM-free tracks to iPhone users through AT&T's network, instead of just through Wi-Fi. The move could crater AT&T's wireless-music offers from Napster and eMusic, which require users to pay a premium for tracks. Some label executives have clung to mobile as a last bastion for DRM-protected, premium-priced content; Apple's move makes that stance even less tenable than before.

As for variable pricing, I've weighed in before on the need for record companies to try to make more money by charging less for music. The deal with Apple is a half-step in that direction. But it's also clearly an effort to extract more dollars from those who are already buying tracks, rather than grappling with the bigger problem -- the steady reduction in spending on music. As the latest year-end results from Nielsen SoundScan show, the number of tracks sold, individually and collectively (in CDs, LPs or downloadable albums), dropped about 8.5% in 2008. That's marginally better than the abysmal results from 2007, when total sales were down almost 10%. But the fact remains that the rise in single track sales hasn't compensated for the decline in albums, and the trend lines don't suggest that it ever will.

You could argue that the demand for single-track downloads is less elastic (that is, less price sensitive) than the demand for albums, so raising the price of popular singles could, in fact, stop the slide in sales revenue. That's how Hollywood has overcome the slow but fairly steady drop in ticket sales at the multiplexes: by bumping up ticket prices. But there's a crucial difference between the labels and the studios when it comes to pricing leverage: If you want to see a new film on a big screen, you've got to go to the multiplex and buy a ticket. If you want to hear a new hit song, there are countless ways to do so online -- some of them free and legal. My guess is that the demand for music is pretty elastic, and that the labels would have more luck lowering prices than raising them. But hey, that's just my guess.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Comments

[semi]

>>As for variable pricing, I've weighed in before on the need for record companies to try to make more money by charging less for music. The deal with Apple is a half-step in that direction. But it's also clearly an effort to extract more dollars from those who are already buying tracks, rather than grappling with the bigger problem -- the steady reduction in spending on music.<<

Actually the point of the music companies doing variable pricing is so they can take back control over how their product is sold. Before variable pricing was available, the music companies could not experiment and run pricing test on iTunes to generate the data points needed to make decisions on how to price and sell products.

Everything was 99 cents. Imagine your are a car manufacturer with 20 different models of cars, but dealer insisted that each model be sold for exactly $25,000.

The cheap hatchback? $25k
The hot new sports model? $25k
The ten-year-old sedan? $25k

You see the problem. If you can't experiment with pricing, you can't find out the market value of your products. Until now Apple didn't care about this stuff because the iTunes store was subservient to selling Apple hardware.

Without the basic freedom to change prices based on market conditions, the music companies' product existed only to enhance Apple's bottom line. Now at least they have a chance to find out if that new Britney track is worth $1.29 or if that old Simon & Garfunkel track sells better at $0.69.