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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 (Nasdaq: AAPL) 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 -- wants to change the parameters of the game again, by introducing new price points for songs. At the same time, its closest rival, Amazon (Nasdaq: AMZN), is swooping in with its own new price points, which in many cases undercut Apple's.
Whichever model turns out to be the winning one will depend on a few factors. Namely, can consumers be convinced to pay more than 99 cents a 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 of price competition as online music companies experiment to see how customers respond.
"I think this is going to set off to a far greater degree than the industry has seen thus far competition among Internet music 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 of top 100 tracks -- by 30 cents, undercutting iTunes in most cases. At the 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's popularity.
"Experimenting with pricing is the first step in tying the price to demand, much like air travel," Andrea Belz, a consultant to technology and entertainment companies, told the E-Commerce Times. "The difference is that you have an unlimited song supply, unlike the fixed number of seats on a plane, but there is no reason that a major pop artist can't have more expensive songs than an obscure indie artist."
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 song that has better quality," he told the E-Commerce Times. "Even kids, thanks to Blu-ray and surround sound, are now realizing that there is such as thing as quality sound now."
While there are many unknowns in the pricing models, it is equally clear that tiered pricing gives the online sites more flexibility in their overall business models.
The sites "want increased sales of artists and songs that are not selling too well," Eugene Foley, author of Artist Development - A Distinctive Guide To The Music Industry's Lost Art, told the E-Commerce Times.
Price variations online are "similar to a brick-and-mortar record store that sells the most popular artists at full cost and then maintains a "bargain bin" where CDs are priced a bit less, to generate sales and interest," he said.
Also, lowering the cost for select songs could be a way to drive consumers to their respective sites.
"Perhaps someone will come
in to purchase a few 69 cent songs," Foley said, "and while there, they wind up
buying a 99-cent song as well."
