Music Industry Attempts Price Increases (or Hari Kari, Part II)

Tuesday, August 30, 2005 | 11:30 AM

for the About a year and a half ago, we noted the "Music Industry is Intent on Commiting Hari-Kari." Today, we revisit that subject.

In an apparent attempt to either a) prove they are as dumb as lawn furniture or 2) hasten their own imminent demise, the music industry is trying to raise prices for legal downloads.

A front page NYTimes article discusses how the music industry is (once again) trying to force prices up. This demonstrates a shocking lack of economic comprehension, as well as a distinct failure to understand their own customers. 

Its a basic rule of Economics: Goods that have Elastic demand  (i..e, non essential) are highly price sensitive. Further, any item easily available for free (albeit illegally) will have an even bigger response to price increases.

This is before we even get to the proposition that 99 cents songs at iTunes are not a particularly good value proposition either (you can buy the disc and rip it and have both MP3s and CD for about the same price).

Prediction: if the labels manage to crank up ITMS prices, expect those pricey legal downloads to plummet in volume. That's just basic economics -- if a free alternative exists, and consumers already think your product is overpriced, than you are in for a heap of trouble if you try to raise your selling price point.

Question: Where the hell are the artists and their representation in all this? Hasn't anyone in the industry besides Mick Jagger (London School of Economics) eceived any sort of business training?

As we have shown time and again, music buyers are extremely price sensitive, that CDs do not represent a good value for consumers, that consumers are rapidly adapting other forms of entertainment, and that DVDs  provide more bang for the buck.

Further, price decreases spur music sales, as does strong economic environments.

Here's the NYT Ubiq-cerpt:™

"Two and a half years after the music business lined up behind the chief executive of Apple, Steven P. Jobs, and hailed him and his iTunes music service for breathing life into music sales, the industry's allegiance to Mr. Jobs has eroded sharply.

Mr. Jobs is now girding for a showdown with at least two of the four major record companies over the price of songs on the iTunes service.

If he loses, the one-price model that iTunes has adopted - 99 cents to download any song - could be replaced with a more complex structure that prices songs by popularity. A hot new single, for example, could sell for $1.49, while a golden oldie could go for substantially less than 99 cents.

Music executives who support Mr. Jobs say the higher prices could backfire, sending iTunes' customers in search of songs on free, unauthorized file-swapping networks.

Signs of conflict over pricing issues are increasingly apparent. This month, Apple started its iTunes service in Japan without songs from the two major companies - Sony BMG Music Entertainment and Warner Music Group - leaving artists like Avril Lavigne, Beyoncé and Rob Thomas out of the catalog because the companies refused to license their music to iTunes, executives involved in the talks said . . .

Some analysts suggest that the willingness of the music companies to gamble on a new pricing structure reflects a short memory.

"As I recall, three years ago these guys were wandering around with their hands out looking for someone to save them," said Mike McGuire, an analyst at Gartner G2. "It'd be rather silly to try to destabilize him because iTunes is one of the few bright spots in the industry right now. He's got something that's working."


Observation
: From Stereophile, comes what may be the most astute statement on the subject -- "The real issue may be that iTunes has become the 500 lb gorilla on the digital music block, controlling 75% of all legal downloads and 80% of the portable digital player market. That level of market dominance may be the real sticking point for the recording industry, which has long been used to actually driving the market rather than being in the passenger seat. In other words, it may be an old-fashioned turf war."

Great . . . just what the recording industry needs now, a good old fashioned cockfight.   

Alex, I'll take Clueless Industry Executives for $100, please.


>

Sources:
Apple, Digital Music's Angel, Earns Record Industry's Scorn
Jeff Leeds
NYTimes,  August 27, 2005
http://www.nytimes.com/2005/08/27/technology/27apple.html

Is the iTunes price right?
Recording Industry Update
Wes Phillips
Stereophile, August 29, 2005
http://www.stereophile.com/news/082905recording/

Tuesday, August 30, 2005 | 11:30 AM | Permalink | Comments (4) | TrackBack (1)
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» 99-Cent Store from theQview
The New York Times reported on a potential change in pricing structure at the iTunes Music Store and the rhetoric in defense of Apple went into high gear. Barry Ritholtz in defense of the status quo argues:Its a basic rule [Read More]

Tracked on Sep 1, 2005 3:12:21 AM

Comments

very interesting that you posted this today. I came to your site specifically to get your email to tell you about this (pay attention to that last sentence):

Source:
http://blogs.zdnet.com/ITFacts/?p=8799

41% of US digital music player owners are willing to pay $10 a month maximum for music
-Posted by ZDNet Research @ 2:10 pm

Music
Fully 41% of people with digital music players in the United States are not willing to pony up more than $10 a month for listening to their favorite tunes, Parks Associates found. With comparable pricing presented in local currencies, the researcher found the same to be true with 62% of people in the United Kingdom, 49% in France, 52% in Germany and 56% in China. A third of the people owning digital music players in the five nations said they believed that music services should be free.

Posted by: dude | Aug 30, 2005 12:09:53 PM

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