iTunes Price Hike?
Lots of people have been talking about how the record labels want to hike the prices in the iTunes store because, well, they’re insanely beyond-belief greedy. My basic take on it is pretty common, it seems. I think that this would be a horrible idea. The 99¢ barrier is huge, from a psychological perspective, and going above it could really damage the one Internet based sales model that seems to really be working. Driving people back to peer to peer seems just plain stupid. Now, the labels aren’t exactly known for being terribly smart; after all, look at the crap they foist on us as “product”. So I would expect some idiocy from them, but this really seems to traverse beyond the normal bounds of expected absurdity. There just has to be something more here.
So I’ve read a bunch of the articles. This one on Macworld UK, got me thinking a bit. It turns out that not all the labels want to jack the prices. You get quotes from some label executives along the lines of “We need to convert a lot more people to the habit of buying music online. I don’t think a way to convert more people is to raise the price.” Some of them do get it, it would seem. So they aren’t all morons.
So who wants to jack the price? Well, it looks like one of the key players who wants to do this is, surprise surprise, Sony BMG. Well, that explains everything right there. Sony wants to damage the iTunes music store, on purpose, because it’s driving sales of the iPod, and they want the iPod dead as a doornail, if they can manage it.
Sony’s got this dual personality thing — they produce music (content) as well as hardware. Because of this, they were really late to the MP3 player game and came to market with a crappy-beyond-belief first offering. I’m sure the hardware guys were more than a little hampered by the content production side of the company. But now it appears to be time to flip it around and do something to damage the label so that they can protect or help the hardware side of the company. You scratch my back, I’ll scratch yours. Because they have two sides that are, at times, directly opposed to each other it shouldn’t come as a surprise to see decisions come down the line that would dramatically harm one side or the other.
Further bolstering the whole “kill the iPod” theory comes the end of the referenced article when various bigwigs get to voice their desire to crack open Fairplay to play the files on non-iPod players. (Like, say, Sony’s perhaps?) They don’t like the way the iTMS directly drives iPod sales and would like to see it start driving sales of other MP3 players, too. (Especially Sony’s?) It’s not at all surprising that Sony BMG seems to be one or, or maybe the label pushing hardest for this.
Anyway, as I start to read between the lines, the pattern that I see emerging is that maybe this whole thing is more about the iPod and less about the iTMS. Some short sighted people want to knock the iPod off its pedestal so badly that they’re willing to risk screwing up the iTMS store and, as a result, deal a huge setback blow to the online music industry in the process. I’m sure that there are more factors at play, but this whole thing just smells worse the longer you look at it.
I sure hope that Apple sticks to its guns on this one. Since it sounds like not all the labels really want the price hike, I think this is a battle Apple could win. Sure, one of the majors (*cough* *cough* Sony BMG *cough*) could still say that they’ll take a hike if Apple won’t deal, and might even try it, but then what happens? All that money flowing through the iTMS goes to the other labels, and the label that walked sees everyone shift to illegal downloads for their music. Apple can put an ad in the iTMS explaining that such and such labels songs are no longer available because they got too greedy and thought 99¢ wasn’t already enough. Can you imagine the impact? It could create a mass boycott of that one label. Customer outcry might force the label right back to the iTMS, 99¢ price and all.
Apple has a lot of the cards here, especially as long as the labels are not all together in 100% agreement. (And if they are, it starts to look dangerously like price fixing and strong-arm collusion tactics, ripe for a RICO lawsuit…) Still, it seems that the only way labels can really successfully get a price hike is if they’re all together on it, and that “success” would probably actually be very detrimental in the long run. As long as just one label breaks ranks and is willing to stick with the current pricing (and it looks like at least two might), it works very much to their advantage. They can say “See, we’re not as soulless as the other labels, buy our music instead! It’s only 99¢ after all!”
Well, it will be interesting to see what happens from all this. I sure hope that Apple gives Sony the royal smackdown on this one.
September 24th, 2005 at 10:58 pm
[…] Not to mention that Apple has already figured out what the labels seem to be missing by a mile: the iTunes Music Store’s main competitor is piracy (free downloads) and 99¢ is a very sensitive price point. They can’t go much less; the main expenses of the licensing fees due to the record companies plus the fixed overhead of the music store itself mean that there’s not much room to drop prices (unless the labels are willing to take less money, something that clearly isn’t going to happen). And there’s a huge psychological barrier as you cross to $1.00 and up. Raising the prices on individual songs would be disastrous. (But I’ve said that before.) […]