Apple iTunes to End Flat Fee Pricing?

MdntToker writes "According the Forbes, EMI has an understanding with Apple that flat fee pricing will end within the next 12 months, and more popular songs will be priced higher than 99c, while lesser known acts will be priced lower than 99c." From the article: "Label executives have made multiple arguments for flexible pricing. They argue, for instance, that almost all retail businesses have different price points for different products. But they are particularly interested in boosting their revenue from digital music sales, which aided by the sale of mobile phone ringtones, are increasing but not quickly enough to replace the continuing drops in compact disc sales. EMI said today that digital sales, made up 4.9% of the company's sales in the last six months, up from 2.1% a year ago." We've previously reported on this story.

Comments

The "Flexible" Elevator - Going Up?

[erick99]

I take it that this will translate into the vast majority of what is downloaded being above ninety-nine cents; otherwise, I don't see why they would bother with "flexible pricing." I know this is cynical - but I suspect that this is intended to be flexible mostly in an upward direction . . .

Re:The "Flexible" Elevator - Going Up?

[interiot]

Not necessarily; profit is one of those microeconomics things that is a curve. If you're on the top half of the curve for a specific product, lowering the price of a product will increase profits because volume goes up faster than unit-profit goes down.

Re:The "Flexible" Elevator - Going Up?

[SatanicPuppy]

Supply and Demand trumps your "Sticky Pricey" theory, and when music became all digital, supply effectively went to infinity, because there is no limit to the number of copies of a single song that can be sold.

That being said, I think prices will drop because artists will find that it is more lucrative to sell songs for .25 without giving the RIAA a cut. Then there is the model piloted by webcomics, where the content is free, and supported by targeted advertising and the sale of branded merchandise.

Re:The "Flexible" Elevator - Going Up?

[Golias]

The new digital model the GP was referring to is the band creating a website, hosting it, and charging $0.25 a song download (or even givign it away for free and make money selling merchandise or concert tickets). Therefore, the music store is obsolete (or can be used just for selling branded merchandise).

Name three rock bands who were never signed by labels and make a living that way sufficient to quit their day jobs.

Imagine if the music version of slashdot existed (it may already, I don't know). Bands could post links to their new releases, users can comment on the songs / bands, and the best bands will gain the largest following.

Dozens of such sites exist. Hardly anybody goes to them. A few hard-core people do so they can pat themselves on the back for supporting indie bands, but most people fall in love with some fractin of the crap they hear on the radio. Even psuedo-indie acts like Death Cab for Cutie are in the position they are in only because a record label pimped them like crazy.

If you will pardon me for briefly playing the Devil's Advocate...

One could easilly make the case that the work done by a record label is more important to the financial success of a music act than the work done by the band itself. When you look at it in that light (and realize that the labels take the brunt of most of the financial risk), it really isn't so eeeevil that they take a bigger slice of the pie.

I mean, David Gibbon just sat in front of a microphone and crooned for a few hours. Behind every album his band has made, there was an army of promotors, engineers, event planners, office staff, and several layers of management, all putting in 40-hour work weeks to make sure that you and as many of your friends as possible buy the album. They all worked just as hard as he did, and for considerably less money. Yet people consider it this horrible injustice when this ONE EMPLOYEE of the record company, who happened to have the most fun job of anybody involved, doesn't get to hog a majority of the profit for themselves.

So yea, if you are a singer and think that's unfair, go out and try to do the work of all those people by yourself. You will probably end up with a much larger slice of a vastly smaller pie, unless you are just as good at music promotion as you are at being a musician.

Re:The "Flexible" Elevator - Going Up?

[Genevish]

The basic problem with that theory is that human greed knows no bound. If the record companies can get away with charging say $2 a song, do you really think they would settle for $1.50?

Case in point: CD prices. I think it's safe to assume the COST of pressed CDs in the volume record companies deal in is around 50 cents. Given the prevalence of CD in this day and age, by your logic CDs should cost no more than... say, $5. The very fact that to this day consumers are still charged $15 a CD would disprove your theory...

There is no problem with the theory. The theory applies in this case like this: If the record companies lowered the price of CD's to the $5 you propose, sales would increase. But they wouldn't increase enough to offset the loss of profit from the lower price.

By the same token, if they make more profit from adding draconian DRM to their CD's, then they will do so. Why is Sony removing the DRM from some of their CD's? Because it's negatively impacting their profit.

Why do CD's cost so much when they cost so little to produce? because people buy them. If you don't like a particular companies prices, or business practices, or ecological ideals, or whatever, don't buy their products. And it won't matter in the least. If, however, enough customers stop buying their products, the company will make whatever changes necessary to increase their profits (changing the price, changing the business practice, moving their factories to cheaper offshore companies, etc). I'd suggest two things: Take a basic microeconomics class, and watch the documentary, "The Corporation".

End Result?

[Shads]

... I go back to snail mailing money to the artists and downloading the mp3. Shrug.

So the model becomes ever more like...

[w.p.richardson]

allofmp3.com?

Only way more expensive...

And encumbered with DRM...

No thanks!

Re:So the model becomes ever more like...

[Jeff DeMaagd]

Forget the arguments of legality, is anyone really convinced that the artist gets any of the money from the sales of music from that site?

Their merchandise, their prices

[MyTwoCentsWorth]

Why complain ? It is their stuff, and they can price it at any level they want. You can always buy from somewhere else or refuse to buy it altogether if YOU think it is too expensive, but I'll bet you that lots of people will keep buying at the new, higher prices. Why leave money in their pockets if they are willing to give them to the record companies ?
Happy Posting.

Good news

[generic-man]

According to Slashdot, popular music sucks. As a result, non-sucky music will cost less than it does today. This is good.

And so it begins..

[Anonymous Coward]

I wonder if 'flexible pricing' will allow them to adjust prices 'on the fly' - let's say 10,000 users download Song A priced 99c and software automatically then adjusts the price to say 1$ 29c or similar price.

Then again, there is no end to corporate greed so I'm expecting to see this in action.

Is this really a bad thing?

[Ossifer]

Shouldn't B-sides actually be cheaper than the hits? New material more expensive than oldies? People have been justifiably complaining for years of having to buy whole albums just to get one or two songs they want, and now they don't have to.

Guys, this is a strange story

[daviddennis]

"Believes"?

It's a story if you have someone say that he "knows" Mr Jobs will do something, or - better yet - if Mr Jobs actually says he's doing something.

But if a record company executive says it, and he has a vested interest in having it happen, and perhaps almost a desperate need for it to happen, well, I don't think his word or judgement is necessarily good.

Record company executives have, from what I've noticed, little reputation for integrity. Until I hear this from Mr Jobs' mouth, or a slick press release and video from Apple about its inevitability, I'm not going to believe it.

D

"According to EMI"

[ErikTheRed]

Yeah, and I'm sure their opinion is 100% pure and unbisased. This could very well be a ploy to pressure Apple into complying. Also, even if it is true, Steve Jobs will send them packing for pre-announcing it.

Just to make sure...

[Spytap]

...So the most easily pirated material (the popular stuff) is going to be more expensive, while the harder to find stuff (the less popular songs) will be cheaper? Either they're changing their business model more drastically than ever before in their history to expand the appeal of smaller artists...or they're just in it for the short run to prove that digital downloads don't work...

Good.

[Senes]

Let the prices change. If someone wants to price their music competitively, let them price their music cheaper. If someone thinks that the latest Britney Spears/Eminem/Metallica album is worth more for a digital file than a CD, then let them get ripped off to their heart's content.

Apple often seems to be on the side of the RIAA over our side, but that's because our side is OUR side and that makes any compromise be less than what we want. I really would welcome price changes in both directions; independant artists being more competitive, and big fat companies ripping off diehard fans more than usual. Go Apple.

Sensible capitalism

[jfengel]

The reason people complained before is that the record company exec was insisting that Apple raise prices but not lower any prices, which is just foolish. You can let the market help you set pricing to maximize profit, but you can't have it both ways. If you just raise prices that's not letting the market decide, and you'll lose money from people who would pay $.49 for a less popular song but not $.99.

It makes sense to me that the one good song on an album would go for more than the rest. The record companies are ticked that they're losing revenue that they used to get; it used to be you had to buy an entire $12-$16 album to get the one non-sucky song. Perhaps $.99 is too low for that song, if people are willing to pay more, as evidenced by the fact that they used to spend MUCH more.

There will be the inevitable replies to this about how you can get it all for free on P2P, but Apple has demonstrated that people will pay for music if it's convenient. Now they get to fine-tune the pricing model.

Personally, I look forward to it. If the latest top 40 goes up, and the older and obscure stuff that I want goes down, I win, at the expense of the rubes paying $2.49 for whatever is hot today.

Feedback is beneficial for all.

[CyricZ]

It's important to complain, as that provides them with feedback on their decision. Everyone is better off if there is dialogue between the two parties.

If enough people voice their opposition, then perhaps Apple will realize that it is not in their best interests to switch to such a scheme. Thus everyone is potentially better off if Apple listens and responds accordingly. Customers can then continue to purchase the songs they want, rather than to boycott. Apple can continue to receive revenue from such customers, rather than having the customers go elsewhere.

Notice that the same thing happened recently with regards to Novell/SuSE and their switch from KDE to GNOME. They announced the switch, and many customers complained. The customers let them know that KDE was still wanted. And what did Novell do? They agreed to keep offering KDE.

It's better to work out such problems before involving money.

Somebody CAN'T read!!!

[Warlock7]

From the article:
"Today EMI Group boss Alain Levy said at press conference today that he believed Jobs would introduce multiple price points for iTunes music within the next year."

This does not say that "...EMI has an understanding with Apple that flat fee pricing will end within the next 12 months..." as the story claims.

Why was this story allowed to be posted this way? /. seems to be slipping...

The actual Forbes story is talking about how the labels want to take advantage of the consumers while Steve Jobs does not want to change the pricing structure. He's fought against it from the beginning and there has been nothing reported to support that the labels have won the fight yet.

Sounds good to me

[mapmaker]

The world's 14 year olds can pay $2 for the latest 50 Cent "song", and I'll pay 50 cents for real music.

The "Possible" Elevator - Going Nowhere?

[danaris]

Yeah, but is anything really going to happen?

From what TFA says, this is based on what one music industry exec thinks Steve Jobs might do. Now, if it was something the exec had heard that Jobs was going to do, that might be something.

This looks to me like nothing more than wishful thinking. And Slashdot jumps in with a sensationalist headline proclaiming certitude, never one to let a little thing like reality (or sanity) get in the way of a nice flamewar...

Dan Aris

Re:As the Ferengi say

[ScentCone]

Greed is eternal

The funny thing is that the usual arguers on both sides of this issue will think you're talking about the other side. People who produce and distribute the product are eternally interested in remaining profitable as the do so, and the people who want popular music seem to eternally want their entertainment for free. At the intersection is (supposed to be) a market economy. But a lot of people on the consuming end seem to have lost touch with the general notion of "the person selling it is asking more than I want to pay, so I'll buy something cheaper, instead" and have shifted to "so I'll rip it off, instead" without any sense whatsover of causality (when it comes to the consequences).

Re:*Clap clap clap clap*

[falcon5768]

um idiot, you DO know that iPods can play multiple formats (INCLUDING MP3) too and are in no way locked to iTunes.

It just means people wont use the iTunes music store anymore, IF at all that, since Jobs has been on record saying this is NOT going to happen and this is one of the assholes trying to get it to happen who is saying it will now and not Apple.

Who cares if iTunes is too expensive now, all I will endup doing now is finding the obscure tracks (which is all I ever downloaded anyway and not the rubbish they play on the radio) and rip CDs again which i can probbably buy cheaper now. All it does in the end is make the RIAA look even MORE foolish.

Why the heck doesn't Apple:

[PortHaven]

1) Start signing bands on a 50/49 cent split. (OMG...can you imagine it, artists getting more money than the label for a change)

2) File a lawsuit on behalf of the artists...that said artists only negotiated "analog" recording distribution rights. That none of the old contracts covered digital distribution. And that all of the artists retain the rights to their digital distribution, including the right to negotiate a digital distribution contract.

(Think about it, a) the common people would support it as I would buy a lot more music at $0.99/song if I knew the artists actually benefited. b) think of how many artists would support such a move? big names too like "Paul McCartney"... As many artists were screwed over big time. Even big name artists saw very small percentages of their songs. This would allow Paul McCartney to regain ownership of his music (for digital distribution only). RIAA would still retain the analog rights (but we all know that's a dying medium). And with RIAA pushing so much legislation distinguishing the difference between Analog and Digital (DMCA) there may in deed be enough cause for a court to decide in Apple's favor especially if 90% of the artists and consumers are in favor of it as well.

RIAA would find themselves the owner of an extinct business model. Left with a rotting carcass...

- The Saj

Re:Why the heck doesn't Apple:

[Morgalyn]

Unfortunately, Steve has commented multiple times (here's one, an interview with the Rolling Stone) that they are not in the business of signing artists. He recognizes that music companies have an expertise in signing artists, in choosing the ones they think will do well versus the ones that will flop. Apple does not have that expertise. Granted, I think it they really wanted to, they would do it, but that might cause the wrath of Apple Corp (see other comments if you need background). Then again, he also used to dispute the coming of the video iPod....
From the linked article:

When is Apple going to start signing musicians - in effect, become a record label?

Well, it would be very easy for us to sign up a musician. It would be very hard for us to sign up a young musician that was successful. Because that's what the record companies do. Their value is in picking that 1 out of 5,000. We don't do that.

We think there's a lot of structural changes that are probably gonna happen in the record industry, though. We've talked to a large number of artists that really don't like their record company, and I was curious about that. And the general reason they don't like the record company is because they think they've been really successful, but they've only earned a little bit of money.

They feel they've been ripped off.

They feel. But then, again, the music companies aren't making a lot of money right now ... so where's the money going? Is it inefficiency? Is somebody going to Argentina with suitcases full of hundred-dollar bills? What's going on?

And it turns out, after talking to a lot of people, this is my conclusion. A young artist gets signed, and they get a big advance -- a million dollars, or more. And the theory is that the record company will earn back that advance as the artist is successful.

Except that even though they're really good at picking, still, only one or two out of the ten that they pick is successful. And so, for most of the artists, they never earn back that advance -- so they're out that money. Well, who pays for the ones that are the losers?

Not Apple's stance

[amichalo]

Steve Jobs is quoted as saying the opposite and further than music companies are "greedy" for wanting this price flexibility.

I for one welcome flexible pricing because I think there is some music I would buy for less than $0.99 that I have not bought because of its current price. Pay more an a dollar for a single? That would have to be some great music, I doubt I would do it. Everyone has their price. mine feels like a dollar.

Never Mind

[Golias]

It's a non-story anyway. From TFA:

"Today EMI Group boss Alain Levy said at press conference today that he believed Jobs would introduce multiple price points for iTunes music within the next year."

So one guy says with no control over the situation tells Forbes magazine that he thinks Jobs will make this happen, and it gets reported on Slashdot as fact.

For fuck's sake, not even the various Mac rumor sites have run with this one yet. When did MacSlash become MacWildGossip?

Re:Never Mind

[SeattleGameboy]

Umm... sorry to break it to you. Apple may control RETAIL pricing for digital music, but the labels set the WHOLESALE pricing for digital music.

The labels can pretty much dictate WHATEVER pricing they want, and Apple will not have any say over it (unless they want to lose revenue). It would be one thing if they had a marketshare of say, Walmart. But digital sale is still pretty small percentage of the overall revenue for the labels.

The labels have been offering their goods at "introductory" pricing to see how quickly they can get legit digital distribution to grow.

Well, thanks to iTunes, they are growing fine, and now the labels want to make (more) money off of it. Which is a lot easier if they can apply flexible pricing model.

When the exec says he believe iTunes will offer multiple price points is because the labels have already announced to the digital music wholesalers that in 2006, they will be introducing mulitple wholesale price points.

Unless Jobs wants to lose even more money than he is losing now on iTunes (yes, they make money on iPod but iTunes is still not operating even yet), he WILL offer multiple pricing points on retail as well.

Behind the curtain, the conversation, the deal.

[haplo21112]

I am sure the conversations between Apple and Music EXECs where something along these lines:

Execs: You need to allow a flexible pricing model where more popular stuff costs more so we can all make more money

Apple: No we don't .99 is working just fine, its an excellent price point sure the less popular stuff we are probably way over charging for, but its made up for by the fact we undercharge for the more popular stuff so money gets made on volume...you can look at it the other way too and the model looks just as good.

Execs: We don't care about the less popular stuff from the bands with actual talent, never did, those acts could drop off the face of the earth for all we care, charge whatever you want for that stuff, here is a list of the artists we care about and have the payola going to promote them even though we all know they suck, oh wait crap *sleep* When I snap my fingers you will akwake and not remember I ever mentioned anything about payola *snap*

Apple: huh, wa...oh yeah, no we are sticking with .99 its an effective sweet spot price point, we will stick with that, besides we control 85% of the online distorbution model we must be doing something right.

Execs: We'll stop selling our stuff through iTunes, then where will you be?

Apple: Eh, whatever you'll be back...we control 85% of the market and sell the most popular player.

Execs: Oh yeah we wanted to talk to you about that we want a cut of the iPod hardware sales too, its only fair.

Apple: Na, You don't seem to understand you need us as I've pointed out we basically own this market yes you make the widget we are the only effective way of getting the widget to the customer

Execs: We'll take our toys and go home, without the music you have no store....

Apple: Without our STORE you have NO STORE

Execs: so there see we need each other so lets talk about that pricing

Apple: no really you don't seem to understand .99 is what the consumer will pay, they are tired of $18 for a CD with two good songs on it, they would rather pay $1.98 to get those two good songs, or $18 to get 18 good songs. Your trying to achive price parity we see it you want the same cash for that CD without selling the end user the physical media. Nice cost savings for you, no raw materials cost, no shipping, no brick and mortar, You must really think those users are idiots.

Execs: (TO self) Oh shit they are on to us.

Apple: No really I think we are going to stick with .99

Execs: I think you don't understand, we really are going to take our ball and go home, ALL of us where will your store be if none of us provide the music to sell in it. NONE. Other stores will work with us on it, sure the players they support are not as good, the store isn't the best model, but hell they will charge whatever we tell them to charge just to get their hands on the product...

Apple: Well you don't have to go that far, maybe we can work "something" out.

Execs: Well thats more reasonable, perhaps we can work "Something" out.

Apple: (TO Self) umm humm you just keep thinking that, sure we'll agree to your "Flexible" pricing...BUT just wait until you see the terms, and when the sales slump on the first couple of releases under this plan, because TRUST me they will, we will make sure of it...

Execs: So we have a deal

Apple: Sure Sure we'll phase it in like the next year

Execs: Excellent!

Apple: (To Self) Umm humm more like 2-3, never, perhaps a token release here or there for a higher price, actually you have played right into our hands, yeah we'll rasie the prices on a few things, but wait until you see the price drops on the back catalog...Volume, its all about Volume, and didn't you notice that clause in the agreement that says we always get the same wholesale cost and keep the same amount of the profits per purchase no matter what, when the price goes down to .79 on that Metallica song from 1990, that .20 is coming out of your share not ours.