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Tiered pricing at iTunes

April 8, 2009

itunes

As of yesterday, iTunes switched to their new model of tiered pricing – $1.29 for in-demand songs, $0.99 for ‘regular’ songs, and $0.69 for the back catalog (and no DRM). This is hardly a new approach – Beatport, the dominant source of electronic and dance music, uses the same type of variable pricing.

On the surface, this is a pretty rational move, straight supply-and-demand. But the economics of Internet distribution are pretty transparent -  the incremental cost of selling the new Britney Spears single is the same as the obscure rarity, and it’s pretty close to nil in both cases. The real pull that Apple has is in the close integration of iTunes with iPhones and iPods, and it’s likely that they are counting on their dominance in the device market to continue to drive sales of MP3s, even at the higher price point.  Consumers are paying for this convenience, not anything else.

But with the rise of streaming services, especially to mobile devices, it’s not clear whether sales of MP3s will be the dominant paradigm in a few years. Long tail notwithstanding, hit singles still constitute the bulk of music sales revenue, this might just be a way for Apple to make hay while the sun shines.

Incidentally, Owen Ashworth (of Casiotone for the Painfully Alone) has an interesting idea that makes use of the long-tail and the zero incremental cost – he suggests that iTunes should curate genre-oriented playlists of 100-200 songs and sell them for $5-$10. The per-song cost is low, it’ll expose listeners to new artists, and it competes directly with the playlist approach of the streaming services. More here.

MP3: Casiotone for the Painfully Alone – Man O’ War [buy]

One comment

  1. I haven’t looked at the iTunes store in forever, mostly because of DRM and I’d rather get something physical for my money but I think I might check out the stuff that’s on the lower price point. Might be slightly more enticing.

    But I still hate the fact that, as you said, there is no cost difference for Apple between something like Spears and then something like Casiotone. I think it’s a dig as customers and there should be some sort of rebellion.

    I like Ashworth’s point. I think it’s a great idea.



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