Music-Download Pricing Drifts Away From 99-Cent Comfort Zone

Consumers have come to accept that songs can be purchased a la carte for 99 US cents via the Internet. That is a result, of course, of Apple’s revolutionary introduction of the iPod music player and the iTunes music store several years ago. Before then, consumers had few options for downloading music onto digital music players — and most of them were illegal.

Now, it appears that Apple — not to mention the music studios — wantsto change the parameters of the game again, by introducing new pricepoints for songs. At the same time, its closest rival, Amazon, isswooping in with its own new price points, which in many cases undercutApple’s.

Whichever model turns out to be the winning one will depend on a fewfactors. Namely, can consumers be convinced to pay more than 99 centsa song? Is improved sound quality a good enough reason to lure reluctant consumers to pay more? Just how devoted are Apple fans to the iPod-iTunes ecosystem?

There are currently no clear cut answers to these questions,which means that these changes are likely to usher in a new era ofprice competition as online music companies experiment to see howcustomers respond.

“I think this is going to set off to a far greaterdegree than the industry has seen thus far competition among Internetmusic providers,” Fred Koenigsberg, partner at White & Case, told the E-Commerce Times.

Besides the variety of vendors, new competition — especially if it winds up boosting prices overall — could finally make popular the subscription-based online music model, Koenigsberg suggested.

“If I knew how this would all sort out, I would be a rich guy,” he quipped.

30 Cents Here, 50 Cents There

For the moment, the price changes on a per-song basis are minimal. Apple’s new tiered pricing varies at most by 30 cents: Some songs can now be purchased for 69 cents; others remain at the 99-cent price point; more popular songs and those coded for better quality sound can be purchased for $1.29.

It is difficult to say how many of iTunes’ songs have shifted into the $1.29 column. Of the site’s top 100 songs, slightly less than half are now priced at $1.29.

Amazon, meanwhile, has cut several of its songs — including many in its list oftop 100 tracks — by 30 cents, undercutting iTunes in most cases. Atthe same time, it too has adopted a $1.29 price point for some tracks.

Pricing by Popularity

Both companies have based their new pricing model on a song’spopularity.

“Experimenting with pricing is the first step in tying theprice to demand, much like air travel,” Andrea Belz, a consultant totechnology and entertainment companies, told the E-Commerce Times.”The difference is that you have an unlimited song supply, unlike thefixed number of seats on a plane, but there is no reason that a majorpop artist can’t have more expensive songs than an obscure indieartist.”

Song quality is also a factor, depending on how the song is coded.That particular decision will prove to be a winner, predicted Holt Vaughn, CEO and president of California Road Studios.

“I definitely believe that consumers will pay more for a songthat has better quality,” he told theE-Commerce Times. “Even kids, thanks to Blu-ray and surroundsound, are now realizing that there is such as thing as quality soundnow.”

While there are many unknowns in the pricing models, it is equallyclear that tiered pricing gives the online sites more flexibility intheir overall business models.

The sites “want increased sales of artists and songs that are notselling too well,” Eugene Foley, author of Artist Development – ADistinctive Guide To The Music Industry’s Lost Art, told theE-Commerce Times.

Price variations online are “similar to a brick-and-mortar recordstore that sells the most popular artists at full cost and thenmaintains a “bargain bin” where CDs are priced a bit less, to generatesales and interest,” he said.

Also, lowering the cost for select songs could be a way todrive consumers to their respective sites.

“Perhaps someone will comein to purchase a few 69 cent songs,” Foley said, “and while there, they wind upbuying a 99-cent song as well.”