Slashdot Mirror
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."
Funnypics
(note: I am not an iTMS customer. I don't even own an iPod)
Everything I have seen/heard/etc about the iTunes store is that it is simple.
People like simple. That's it. Why do companies not get this? How many people's VCR clocks blink 12:00 becuase (to them) it is too hard to actually set it?
Now, Apple is on to something with their pricing model. It is simple. Sure, some older songs are probably not worth as much and some newer songs might be worth more, but overall it is a good balance. It's simple. They would likely lose more revenue by going a variable (and more complex) pricing model than they do by not squeezing those last few cents out of the most popular songs.
What it will do, though, is lower the incentive for newer bands to sign with the big labels, and go with more indie labels, because the distribution will be the same (assuming Apple doesn't start doing dirty things like making labels pay a $1M fee to include their songs on iTunes or something like that).
After the Sony DRM debacle, I've ruled out CD-based media altogether.
Say what you will about Apple DRM, but at least it's honest - and doesn't attempt to sabotage my CPUs. Good to know my pricing hasn't gone haywire in the near-term. For those who think that variable pricing is the way to go (except for whole albums) check out the raging success story that is google video. They're pay model is so - easy to understand - and easy to work with - no one I know is using it.
I'd say that's a ringing endorsement for keeping it simple.
big label artists are still being boned
So maybe they need to stop being big label artists. Easer said than done I realize, but if they can maintain and even use their fanbase to move to a more progressive indie label they will pave the way for artists who currently need the clout of a big label to get noticed. Once listening to bands on a Internet only indie label becomes trendy, then digital music will be all that we want it to be, right now there is still too much $$$ in the old corperate giants, because people still go for the big corperate product.
We are all just people.
I don't think so. See, you represent one end of the bell curve we'll call 'cheapskate' and the fact is, no matter what the price were set to, someone will fall further along that curve than you and claim that everyone is missing out on huge profits by not dropping the price in half.
The reality is that given the enormous success of the iTMS, it seems that Jobs et all were spot on with their pricing model (which one would assume was arrived at after much research). Reality check - nobody sells a BILLION of anything that's outrageously overpriced...
Think outside the... Hey, where'd the friggin' box go?
We hear so often that variable pricing is good. I think it's interesting that newly released music is commonly considered more valuable just by virtue of being new. This particularly applies to covers, rehashes, etc.
... maximize profits.
Profit Maximization and its importance is taught in econ classes, and the sales crowd give it a rather exagerrated importance, but the fact that the 'market' is in fact people which have a tendency to behave according to their own choosing and not as mindless drones of the 'invisible hand' is not.
They always go for getting the maximum profit achievable with a given or minimum quantity of sales. The very thought at the end does not deliver what they want to get indeed :
If you make an easily obtainable/copyable product overpriced, you pump up piracy, or at the least unwillingness to buy your products in the target crowd.
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 ? or would any of us get a 'cheaper' song because the song we wanted was priced much higher ? is it that simple that we are going to get the 'best obtainable' from the songs provided ? a sheer stupidity scratch for the marketing crowd ? yes .
Not only the 'profit maximizing' concept actually hampers the profits, but it also shatters market reach and market control - which is something priceless in most respects. Sell a song for just $0.10, and youll get hordes of people buying songs because 'its just nothing' in price - youll become a net standard.
Sell them for $5, and youll get piracy.
Read radical news here
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
People make it seem like iTunes is on our side against the big record companies or something. It's not. If the RIAA companies really disliked iTunes, they could stop iTunes from selling their songs any time. The RIAA likes iTunes. Sure, they would like to make even more money from it, but they make plenty now as well. All this "fighting" between Jobs and RIAA is just a show.
To make it simple, Apple and RIAA are in bed with each other. They just can't decide who's to be on top.
And $15 was too much for a full CD of uncompressed, DRM free pop 'album' from an artist you didn't even want to listen to. So what. You weren't buying it anyway.
How much WOULD you pay for music you don't want?
How much would you pay for music you DO want? $0.05/track? $0.10? $0.50?
How much is music worth to you? Where is your personal dividing line?
For a 99 cent sale, Apple pays the copyright owner 70 cents.
What the copyright owner chooses to do with that 70 cents is up to them.
If the artist sold their life, soul, and music over to a huge label in return for a massive advance, then the label is now the copyright owner (NOT the artist), and the label might pay the artist a pittance of that 70 cents. (Every contract between label and artist is different, and Apple has nothing to do with that.)
If the artist did not sell their soul to a label, then they are still the copyright owner, and the artist gets to keep the entire 70 cents.
I admire the Downward Battle guys in some ways, but their protest is misguided when they try to make Apple look like the bad guy because an artist chose to sell the rights to their music over to a big label.
It was the artist's choice give up ownership of their music. They could have remained independent but they chose the big up-front advance in return for no longer owning their own music.
Not a single recording artist has been paid one cent by allofmp3.com, and I defy you to prove otherwise.
C'mon. One scan of a royalty check. That's all it'd take.
News for Nerds. Stuff that Matters? Like hell.
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.
if a market has perfect elasticity, that curve would be a straight line at a 45 degree angle...
Actually, I think you're thinking of "unit elasticity," or an elasticity of 1. "Perfect elasticity" would be represented by a horizontal line. At price p the firm would sell as many as they could produce. At price p + $.01 consumers display their perfect willingness to refrain from purchasing, and the firm sells none of their product or service.
Here's a page with some diagrams:
http://www.answers.com/topic/elasticity-economics
From the GPA:
"The result is I simply quit buying CD's. How is this profitable?"
The correct answer to this question is "You are not a part of our target market."
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.