Labels Fighting For Download Price Elasticity Mis-Judge The Marketplace Again
There’s a good overview on the record labels fight for more price elasticity on the SharkJumping blog here written by a former exec and Real and Listen.com.
"…the music labels are again complaining about the $.99 price point for tracks on Apple’s iTunes digital music service (the other download services aren’t big enough to matter and would have to follow whatever Apple does)…The core disagreement is that labels feel that flat rate pricing doesn’t capture enough margin for those hot tracks where users would pay more. Numerous studies will be trotted out, showing that consumers will pay up to $2-3 for hot singles, so the labels are giving up substantial margin by wholesaling all tracks at $.70-75. Then they will point to ring tones where pricing is 2-3x higher, and that’s not even for the whole track or even the song itself in case of polyphonic ringtones. Finally they will offer up a lower price point which will be added to the equation so that it doesn’t look just like a price increase – the goal is probably a $.50-$.75 price point for deep catalog/less desirable tracks, $.99 for the majority of music, and $1.49-$1.99 for more popular tracks…"
It all seems to make sense until you realize that the real competition for paid downloads is FREE. And while some consumers may pay higher prices for hit product others will be driven back towards free P2P tracks. How long will it be before labels realize that other business models are needed? Possible solutions include the various music rental models, ISP music fees, and perhaps lower rather than higher pricing. All of these scenarios scare labels used to pocketing a pre-royalty $7-8 per CD vs. 60-70 cents for a single hit track, but so far all of the signs point to music industry having little choice but to face reality.
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"…the music labels are again complaining about the $.99 price point for tracks on Apple’s iTunes digital music service (the other download services aren’t big enough to matter and would have to follow whatever Apple does)…The core disagreement is that labels feel that flat rate pricing doesn’t capture enough margin for those hot tracks where users would pay more. Numerous studies will be trotted out, showing that consumers will pay up to $2-3 for hot singles, so the labels are giving up substantial margin by wholesaling all tracks at $.70-75. Then they will point to ring tones where pricing is 2-3x higher, and that’s not even for the whole track or even the song itself in case of polyphonic ringtones. Finally they will offer up a lower price point which will be added to the equation so that it doesn’t look just like a price increase – the goal is probably a $.50-$.75 price point for deep catalog/less desirable tracks, $.99 for the majority of music, and $1.49-$1.99 for more popular tracks…"
