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With Amie Street, Sony Music Opens Door to Dynamic Pricing Possibilities

amie-streetToday’s news that Sony Music will offer its catalog through online music store Amie Street represents a potential step toward major music labels’ embrace of the dynamic pricing model, in which increased popularity of a song drives up its price. Although Sony, the first major label to sell music on Amie Street, is still only offering downloads using the tiered-pricing model it uses in iTunes, the deal with the startup clears a path for Sony to apply dynamic pricing to new artists’ music as they develop commercially.

To date, dynamic pricing has primarily been a factor only in the independent music arena. Major labels such as Sony already offer records by up-and-coming artists at reduced prices in an effort to break them commercially, and could easily extend that strategy to include Amie Street’s model, in which songs rise in price from free up to 98 cents based on their popularity. Independent artists, niche labels and distributors such as The Orchard Enterprises (s ORCD) and Iris have already accepted the model somewhat, and Sony-owned indie-label distributor RED began providing music to Amie Street a month ago. Amie Street says it wants to act as “a filter for underexposed music,” and draws on Web community features to highlight artists growing in popularity.

Record labels, it’s been said, are like venture capitalists for artists, investing in them during developmental stages with the hopes of future commercial rewards. They’re also like VCs in that they tolerate numerous commercial failures in search of a handful of blockbuster hits that pay for the commercial duds. But the changing market for music includes fewer superstars and a larger middle class of artists, making the “middle market” of non-hit songs and albums an increasingly important area of music-business economics — one the majors have largely been ceding to indies over the past decade. For major labels, Amie Street could help bridge the gap between hits and duds, smoothing out the curve by offering modest sellers at a moderate price point early in their commercial life cycles.

In an interview, Amie Street co-founder Joshua Boltuch told us the company is proceeding cautiously as it expands its inventory to include major-label content, keeping in mind the outcry after subscription service eMusic hiked its prices this spring following a deal with Sony (as justifiable as the price increase might have been). Boltuch declined to say whether Sony is planning to begin experimenting soon, although he added, “We hope so.”

Amazon.com took a stake in Amie Street’s first round of funding during 2007, and the company has been engaged in Series B fundraising since last fall.  Boltuch said it’s held discussions with VCs and strategic investors, and is “close” to capping its second round, but confirmed that neither Sony nor any other record label has equity in the company.