Quoting from a /. article:
First the music industry wanted more money, by changing Apple’s 99 cents per song policy. Now one exec is threatening to pull the plug on Apple if Steve Jobs doesn’t change the iTunes Music Store pricing.” From the article: “Nash’s comments echoes those made last week by Warner CEO Edgar Bronfman, who called for Apple to adopt variable pricing and share out revenues from iPod sales.
This thing has been on the news for quite a while. It seems that the music companies, aware of the enormous iPod and iTunes success, want a bigger cut of the pie from Apple. This is primarily due to two reasons: the 99cent/song flat charge doesn’t make sence business-wise, and the emergence of new, lucrative markets, such as the mobile phone ringtone and music downloads, which have not yet been addressed by Apple.
Regarding the first point: the music industry things that the flat charge model that the iTunes is using is flawed. The music companies believe that there is little sence in charging the songs of the latest Franz Ferdinand album as much as those of some god forsaken country band of the 80s. They advocate the introduction of multi-level pricing, that will be aware of the fact that certain songs are “hotter” than other, older, ones. After all, this is a free market, where prices are supposed to be set according to demand. I guess that what’s in their minds is a pricing scheme with feedback, that will lead to price raises should the demand be high enough, and to price drops for older items, as a way to help create demand.
At the same time, the industry is a spectator to a ridiculous phenomenon, that of the ringtone download business, where the mobile carriers charge as much as $2-3 per ringtone! If one realizes that this ringtone is nothing more than a simple MIDI file, it is easy to understand how outraged the music industry must be at the fact that people can download a high quality music file from the iTunes store just for 99 cents.
Under these circumstances, I think that it would be hard for anyone to blame the music companies for wanting to re-negotiate the terms of making business with Apple. Unfortunately, their reaction to the aforementioned challenges is as flawed as the model that they are trying to redefine.
It seems that the legitimate music download business is finally a viable alternative to illegal music downloads, and this is mostly due to Apple’s combination of the iPod with the iTunes Music Store. When the store started back in 2002, it introduced the first attempt to sell digital music online without treating the customers as potential thieves. The licencing scheme was reasonable, and it accounted for the fact that people have more than one computers on which they want to listen to host their music libraries (containing the songs that they’ve bought online). And, at the time, the pricing was great. 3 years ago, a new album would cost more that EUR20 in Europe, and buying the whole album online, actually made sense financially. All these facts resulted to the huge success of the iTunes Store. In other words, Apple created a market that up until that time seemed to be irrelevant, and prepared the ground for the introduction of other such services.
Unfortunately, the business model that was introduced back then, doesn’t seem to be viable any more. I do believe that using a flat charge for any song is irrational, especially for songs that have long been forgotten by everyone. At the same time, it is ridiculous that the music industry is even comparing the music download business with the ringtone one. Most people would never buy more than 10-20 ringtones, whereas music fans buy a couple of albums every week. Who makes more money for the business? The occasional ringtone downloader, or the loyal music fun?
Four years ago, Apple created a new market for music downloading. It is now high time that it should revisit the business model under which the iTunes Store operates. This process should take into account the requirements imposed by the music industry. However, both parties should exercise caution in introducing changes, so that any new pricing scheme does not strangle the market…
