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ITunes' variable pricing gives Amazon's music store a leg up

April 8, 2009 |  1:36 pm
Itunes-let-it-rock
Kevin Rudolf's "Let It Rock" is one top download on iTunes that has been upped in price.

Apple introduced variable pricing for music sold through the iTunes Store on Tuesday, increasing the cost of the hottest-selling songs to $1.29 and decreasing less-demanded tracks to 69 cents. But its  next-closest competitor in music downloads, Amazon.com, still has many of those same tracks for 99 cents.

Amazon, Wal-Mart and other music services followed Apple's lead today and changed their pricing schemes. But far fewer of their top-100 tracks made the jump to $1.29.

Will iTunes users pay a premium for the convenience of purchasing without having to leave the comfort of their jukebox software? If the copious responses from irate readers around the Web are any indication, some are already shopping around for a new digital music retailer.

And really, is there anything stopping them? Sure, iTunes has a major lead among the digital music services; it is used by 87% of  digital music customers, according to research firm NPD Group. (Amazon, used by 16% of the customers, is No. 2; because customers can use more than one service, the percentages do not add up to 100%.)

But we're talking virtual stores here. It's not like you have to drive for miles past four iTunes-Marts before finding a mom-and-pop record store. Amazon is literally just down the Information Superhighway.

The major record labels have aided competing services in trying to end the reign of Steve Jobs and iTunes before. They took a risk with subscription models by supporting Napster and Rhapsody. We all know how that's turning out.

Even this discord between pricing on Amazon and iTunes isn't the first leg up that labels have given Amazon. Months before iTunes touted the removal of the shackles that is digital copy protection (called digital rights management, or DRM), the "Big Four" record companies gave Amazon ...

... a backstage pass to exclusively sell DRM-free downloads. It was the adrenaline that Amazon needed to reach 16% of download customers in just a year and half.

"We need some online competition" for iTunes, Edgar Bronfman Jr., chairman of the Warner Music Group, told investors in September 2007.

Now the record industry has its fighter in Amazon, though still a distant second. Apple's capitulation to variable pricing has been a long time coming, and the move may prove the most costly 30-cent price increase of any product in decades.

But then again, it may not. And to be fair, it's not a universal price increase. An Apple representative was quick to point out to a New York Times writer that some critically acclaimed (though relatively ancient) songs, including ones by Elvis Presley and Bruce Springsteen, have actually dropped in price -- to  69 cents.

No, the price battle probably won't kill the iTunes store. But in this economy, the new cost options have already pushed consumers to shop around for the cheapest downloads -- previously a non-essential activity thanks to every retailer having the same stuff for the same price. For example, a new tool called Advantageous lets users check a song's price directly from within iTunes.

Don't expect Amazon's and Wal-Mart's one-up in the online music market to equate to a level playing field. An anonymous music industry executive told the New York Times that Apple's main concern in the negotiations was securing music distribution on the iPhone and iPod Touch.

Mobile downloads could be the next frontier for music sales, expected to generate $4.2 billion in revenue by 2012, according to an extensive report released in December.

Though Amazon does have a mobile presence on the T-Mobile G1, which runs Google's Android operating system, it's the same story, different market. Apple's iPhone has 33% of the smartphone install base versus Android's 5%, according to mobile advertising company AdMob.

No discussion about iTunes is complete without the question, "Where are the Beatles?" Apple Corps. -- the record label, not the Mac maker -- posted a press release on the band's website Tuesday about a new digitally remastered CD set of the Beatles' entire music catalog. The set will hit stores alongside the release of "The Beatles: Rock Band" video game.

But buried at the bottom of the post is this disheartening statement: "Discussions regarding the digital distribution of the catalogue will continue. There is no further information available at this time."

Sorry, Beatlemaniacs.

-- Mark Milian

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