Apple CEO Steve Jobs is quickly becoming the Rockefeller of the music industry. Online music sales are exploding–almost tripling since last year–while overall album sales have declined 3.9 percent in the same period. Apple’s iTunes Music Store accounts for roughly 80 percent of that online market, which now amounts to five percent of all revenues for the major labels, and growing. The recording industry is seeing the future, and it has iTunes written all over it.
So it must have been surprising when Apple declared a few weeks ago that it would keep selling songs on iTunes for 99 cents each, no matter what the song, instead of allowing any kind of price variability. Such backward-style thinking wouldn’t seem to fit with a future-oriented guy like Jobs. But when labels like Sony and EMI advocated that they be able to charge more for new hits by recognized artists, Jobs called them “greedy” and refused.
What gives? What is so evil about supply and demand–the pricing model that undergirds just about every other commodity on the planet–that Jobs would refuse to apply it to songs?
Perhaps Jobs thinks record executives would try to scalp the fans that might flock to the new single by Taylor Hicks, and that makes them “greedy.” To some extent that’s true, since why charge 99 cents for a song that a fan might be willing to pay two dollars for? On the other hand, who really thinks that all songs are equally good? Aren’t some songs just better than others?
It’s one thing to say that there’s no objective measure by which we can compare songs to each other, but quite another to then impose a one-price-fits-all model on them. Some people prefer Slayer over Madonna, and some people think the opposite, but if more people want Madonna’s songs than Slayer’s songs, why shouldn’t Madonna’s songs be more expensive?
What Jobs forgets is that a higher price for Madonna’s songs is less about scalping Madonna fans and more about sending information to consumers. Under a supply and demand model, consumers can learn that higher-priced items are in more demand, and therefore are more likely to be what they would also want.
Variable pricing is also a boon to independent artists. A garage band nobody has ever heard of might not be good enough to warrant anyone paying 99 cents for one of their songs. But at, say, 25 cents, people might be more likely to give them a go. But for now, they are pretty much shut out of the iTunes market. On the flip side, allowing popular songs or artists to go for a premium encourages the production of songs that would attract bigger audiences. Having one of the most expensive songs out there becomes a badge of quality. It benefits consumers to have artists and record companies striving to create high-demand songs, because that means more people are getting what they want.
Jobs also expressed concern that a variable pricing model might confuse shoppers. If he means shoppers that never go to supermarkets, restaurants, car dealerships, or practically any other store in America, he might have a point. (Maybe iTunes users only leave the house to go to the movies, because theatres use a similar one-price-only model for movies, as I have previously written, and for equally foolish reasons.) Otherwise, shoppers are more than able to weigh a variety of prices to make their purchasing decisions.
Perhaps the most obvious reason why single-pricing makes no sense for music is that the industry has already rejected the model. Record stores routinely put older and less popular material on sale. And there are online competitors to iTunes that have adopted variable pricing as well. Consider the Russian site AllofMP3.com: They sell music on a per-megabyte basis, so that longer songs like Prince’s “Purple Rain” cost more than anything by The Ramones. If Jobs has a problem with pricing songs according to demand, why not price according to length? At least that would help cover costs of storage and bandwidth.
Hopefully, Jobs will eventually relent and give up on the dollar-store pricing model. But with online sales surging and CD sales slowing, the record companies need to ride with iTunes more than ever before to make up for lost revenue. For now, it seems, Jobs gets to call the tune. And price it, too.
James N. Markels is an attorney and a regular columnist for Brainwash.
Source: AFF Doublethink Online | Joseph Hammond
Source: AFF Doublethink Online | Emma Elliott Freire