Tuesday, March 31, 2009

Question of the Day - March 31, 2009



Buddy D. asks:

What is the impact of iTunes new 3-tier pricing structure on the music industry?

Apple recently announced that iTunes will start allowing music labels to choose between 3 different prices per song: $.69, $0.99, $1.29.My question is: Do you think that this will push the music industry to move towards a low-cost, high-volume model [pricing most music at $.69] or will the music industry attempt to go with a high demand = high prices model [where the most popular songs cost $1.29]?I sure hope that the new, "hot" music is not priced higher because I think it would be a mistake. Many listeners might actually be put off by the extra $.30 per song, thus reducing the song's chance for exposure and purchase.

Hartmann responds:

The important consideration is that they are experimenting. Trying these new pricing points is an effort to appease the recording industry that is suffering from loss of revenue. The big four record companies are still trying to maintain an excessive profit margin on the product they do sell. This is because music sales can no longer hold up the infrastructure created when the profit in albums was extraordinarily high. That infrastructure will not survive. The $1.29for "hot" product will not increase sales because what the record company deems "hot" may be a fantasy. And, if they anger the fan base the kids will just steal it. The good news is that they will probably have a booming business on their catalog product at the lower price. This will result in greater sales volume, higher profit margins and drive the per song price down even further. Eventually it will settle where it belongs, around twenty-five cents a tune. Remember, paying for music is optional and only if there is a sense of fair play will it happen at any price. The record companies must embrace pricing policies that are fair to the artist and fair to the fan.In the future the new artists will sell directly to there fan base and the big four record companies will be out of the mix.