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Apple Sets Tune for Pricing of Song Downloads
PygmySurfer writes "Apple Computer on Monday revealed it had renewed contracts with the four largest record companies to sell songs through its iTunes digital store at 99 cents each. The agreements came after months of bargaining, and were a defeat for music companies that had been pushing for a variable pricing model."
Price as Signal
... so Econ 101 says they should lower the price and try to get a few more bucks filling up the theater with price-sensitive moviegoers.
Forbes: "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."
The story they're trying to tell you is that "older, less popular songs could be discounted, and in-demand singles could go for more than a dollar."
Let's think this through, because I think the recording industry is lying about why they want different prices.
Before I start with that, have you ever noticed that movie theaters charge the same price for all movies, whether they are Steven Spielberg blockbusters or crappy John Travolta religious quackery disguised as science fiction that nobody in their right mind would want to see?
Theoretically, when a super-duper-blockbuster comes out, like, say, Lord of the Rings, there's so much demand that the movie theaters just end up turning people away. Econ 101 says that they should raise the price on these ultra-popular movies. As long as the movie is sold out, why not jack up the price and make more money?
Similarly, when stinkers like Lesbian Gangster Yoga with Ben Affleck come out, the movie theatre is going to be pretty much empty anyway
And indeed this is what the recording industry is telling you that they want to do on iTunes. But they don't do it in movie theaters. Why not?
The answer is that pricing sends a signal. People have come to believe that "you get what you pay for." If you lowered the price of a movie, people would immediately infer from the low price that it's a crappy movie and they wouldn't go see it. If you had different prices for movies, the $4 movies would have a lot less customers than they get anyway. The entertainment industry has to maintain a straight face and tell you that Gigli or Battlefield Earth are every bit as valuable as Wedding Crashers or Star Wars or nobody will go see them.
Now, the reason the music recording industry wants different prices has nothing to do with making a premium on the best songs. What they really want is a system they can manipulate to send signals about what songs are worth, and thus what songs you should buy. I assure you that when really bad songs come out, as long as they're new and the recording industry wants to promote those songs, they'll charge the full $2.49 or whatever it is to send a fake signal that the songs are better than they really are. It's the same reason we've had to put up with crappy radio for the last few decades: the music industry promotes what they want to promote, whether it's good or bad, and the main reason they want to promote something is because that's a bargaining chip they can use in their negotiations with artists.
Here's the dream world for the EMI Group, Sony/BMG, etc.: there are two prices for songs on iTunes, say, $2.49 and $0.99. All the new releases come out at $2.49. Some classic rock (Sweet Home Alabama) is at $2.49. Unwanted, old, crap, like, say, Brandy (You're A Fine Girl) -- the crap we only know because it was pushed on us in the 70s by paid-off disk jockeys -- would be deliberately priced at $0.99 to send a clear message that $0.99 = crap.
And now when a musician gets uppity, all the recording industry has to do is threaten to release their next single straight into the $0.99 category, which will kill it dead no matter how good it is. And suddenly the music industry has a lot more leverage over their artists in negotiations: the kind of leverage they are used to having. Their favorite kind of leverage. The "we won't promote your music if you don't let us put rootkits on your CDs" kind of leverage.
And Apple? Apple wants the signaling to come from what they promote on the front page of the iTunes Music Store. In the battle between Apple and the recording industry over who gets to manipulate what songs you buy, Apple (like movie theaters) is going to be in f
It's too bad the contracts are only for four years...so we'll see this whole senseless charade again soon enough.
I had thought Apple might try to secure a longer term deal with the labels (maybe agreeing to a pcrice increase with inflation or something). My plan at Apple would be:
(1) Negotiate long-term deal with the labels (10 years or more).
(2) Spend the next year either inking a deal with Apple Records and the Beatles, winning the lawsuit, or buying them outright.
(3) Convince one or two BIG artists to sell directly themselves with Apple as the distributor. Offer them like 50% of the proceeds of sales, and sell through the iTunes Music Store exclusively, with possible physical distribution at Apple Stores.
(4) Other smaller artists take notice, and an Apple label (maybe not named 'Apple' if the Beatles situation can't be won) suddenly begins to gain momentum, and fuck over the labels in the process (which would make me rather happy).
(5) Profit.
You could throw another step in there, since Jobs is Disney's largest shareholder. Apple and Jobs could buy Disney outright, and gain some record distribution and music IP themselves, which they could immediately market at a different standard than the labels who "won't play nice". Then they could sign artists to Buena Vista Music or whatever.
I know, I know, the prospect of Apple having this kind of media control is a bit scary. But personally, I don't fear it because I believe all music and video is destined to be free ("pirated", if you want), anyway...but I would sure like to see someone (Apple would be fine) bend those record industry jerks over and do to them what they've been doing to us for the past 40 years.
I feel so much better after a nice diatribe...
gameDB
http://fifthroom.blogspot.com/2006/01/why-apple-wa nts-free-music.html
Why Apple wants free music
The recording industry keeps asking for tiered pricing on iTunes, and Apple keeps saying no. This seems odd--why can't the two agree on how to make the most money off online music sales? In fact, I'm sure they agree, and I'm sure the recording industry is right: more money could be made with tiered pricing. The real problem is a conflict of interests--the recording industry makes money off music, and Apple makes money off iPods. Here are some numbers: in under 3 years, 600 million songs have been purchased on the iTunes music store. Apples cut of that comes to just over $210 million. Meanwhile, the Apple has sold 6.5 million iPods in the last quarter of 2005 alone. That's well over $1 billion in just 3 months; the money from iTunes is pocket change.
From the perspective, it's clear why Apple doesn't want to raise prices on iTunes. They could double revenue from the music store and they still wouldn't approach iPod level revenue. While the recording industry is interested in iTunes to generate revenue, Apple doesn't it see this way. They have other things in mind for iTunes:
1. Apple does not trust a 3rd party to develop a music store for the iPod. They have two reasons for this: first, making good software is tough, and I don't believe they would trust someone else to do it for them. iTunes is easy-to-use, well designed, and well programmed, and the iPod is all the more successful because of this. Second, depending on a 3rd party for a business critical application could put them in a strategic bind in the future. Napster's subscription model and other byzantine DRM restrictions pose obvious problems here.
2. The more stuff people put on their iPods, the better for Apple. I think this is Apple's main concern. Everyone who has taken Econ 101 knows about complement products--when the price of DVD's goes down, sales of DVD players increase. Alcohol prices on the rise? Bad news for Trojan. Music is a complement to the iPod, and the lower the price of music, the more iPods Apple can sell. If it were up to Apple, music downloads would be free, and we'd all be out buying 60GB iPods because our old 10GB models just can't fit everything. Do you think Apple is concerned that people are using iTunes to steal music? Not at all! Free music makes it easier for Apple to push their new, high capacity iPods. The motivation for the two latest additions to iTunes becomes clear in this light: fill up people's iPods faster (videos) and without asking for money (Podcasts).
How many of us would think 'well, its just nothing, let me get 5-10 songs tonight' if the price per song was $5 or $10 ?
For one or two bands, I would. Lower that to $2 per song and I'll go up to 5 or 6 bands.
or would any of us get a 'cheaper' song because the song we wanted was priced much higher ?
I do, all the time. For $20 a CD had better be something I'm sure I'll love. For $10 I'll buy an album from someone who's played something I liked on the radio. For $5 I'll take a chance based on just word of mouth. Am I that abnormal, because I base my purchasing decisions on both price and expected value?
Of course, I'm not too sympathetic with the music industry here. They're supposed to be publishers, and if they'd been smart enough to start publishing over the internet ten years ago, Apple would be in no position to start dictating terms now. The labels would just undercut iTunes for any songs they wanted to price at less than $1, and they'd refuse to put on iTunes any songs they wanted to price at more than $1.
But they didn't want to do their jobs (Gosh, isn't the internet that place with all the pirates? We'd better stay away from that!) and now they're mad that they're being ordered around by a company who did their jobs for them. How sad! If the record companies get smart, they'll just be silently grateful that Apple hasn't started dealing with bands directly and cutting the less competent middlemen out altogether.
How on earth can you people complain about $0.99 a download?
There are a lot of people that need to get paid out of each track sold, and bear in mind the razor thin profit margins apple themselves must be taking.
Here in the UK, we are paying £0.79 ($1.44) for EXACTLY the same music from iTunes.
Now THAT is a ripoff.
C'mon. One scan of a royalty check. That's all it'd take.
Your claim (that allofmp3.com doesn't pay artists) is correct, but for the wrong reasons and the sort of proof you're asking for wouldn't exist even if the artists were paid by allofmp3.
I worked for a major record label them for six months building a royalties calculation engine, and I can tell you that distributors never pay label-affiliated artists directly. Distributors pay the label, the label calculates the artist's share based on the contract with the artist and periodically cuts a check to the artist which includes royalties from all sorts of distributors. So if they were to get money that came from allofmp3.com, it would be mixed in with other royalty payments, not separated out in a check that could be scanned.
Among the royalties paid to the artist are the royalties due to licensing to radio stations, which is effectively what allofmp3.com is, from a (Russian) legal perspective. Radio stations do have to pay money to broadcast music, but it's not very much, and (IIRC) it's a blanket license to play all of the music controlled by a label. The cut that goes back to the artists is miniscule -- practically nonexistent.
So if you're going to use allofmp3, you should assume that the money you're paying them is for the distribution service. If you want the artist to be paid, you need to find another way. Buying merchandise, going to concerts, joining their fan club, or just finding a mailing address and sending them $2 are all good ways to do it. In fact, they're all ways that will put more money in the artist's pocket than will buying a CD or downloading from iTunes.
A direct result of the time I spent working on that royalty calculation system is that I personally feel it's immoral to give money to the labels. From a moral perspective, I feel better about using allofmp3 (or bittorrent, but allofmp3 is more convenient and consistent) and finding another way to pay the artist. Preferably one that I'm sure the label can't take a cut of (the envelope with $2 cash seems like the best bet).
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