Blog Post

Pricing of Digital and Mobile Music; Alternate Options

Traditionally music was priced according to how much it cost to distribute — apparently labels roughly doubled the cost of manufacturing the medium (CD, tape, record) and set that as the wholesale price — that doesn’t apply with digital music. As a result, the industry is struggling to determine how much a song is worth. “Even as 99 cents remains the most common price tag for tunes, efforts are afoot in the mobile music business and in other parts of the PC-based downloading market to test the limits of the iTunes-favored buck-a-track formula…To understand just how slippery music pricing has become, look at the smorgasbord of prices for a hit tune like “Check on It” by Beyonce. Among the cell phone carriers, Sprint is selling the track as an over-the-air download for $2.99, Verizon is selling it for $1.99, and upstart mobile virtual network operator (MVNO) Amp’d Mobile has it for 99 cents. Among iTunes’ competitors, Walmart.com has it for 88 cents, and subscribers to Real Networks’ Rhapsody can buy it for 79 cents.”
The 99c price is the result of a back-of-an-envelope calculation of how much people paid for each song on a CD. Labels are keen for a “variable model”, but “antitrust probes from Spitzer and the DOJ are likely to have a chilling effect on the ability to roll out variable pricing strategies in the near term”, which is probably why they signed on for another year with Apple.
On mobile phones the industry is pushing the “convenience model”, which is based on the premise that consumers will pay vastly more for the convenience of downloading a song wherever they like. There is some truth to that, but the industry has grossly over-estimated how much that convenience factor is worth.
The other strategy is the “value added model”, which tries to get people to pay more for a song by offering extra content like ringtones, games, wallpapers etcetera. This is a good idea, but the article suggests that the digital download boom was created by lables trying to get consumers to buy CDs as opposed to individual songs.
All in all, I think it will be some time before the price of digital music settles down to a standard…