Apple Under Pressure to Change Music Pricing

The music industry has turned up the heat on Apple (Nasdaq: AAPL) CEO Steve Jobs. The industry wants a tiered pricing system for music downloads instead of iTunes' current system in which 99 cents gets you any song in the catalog. Industry executives have been agitating for months to price songs based on popularity, but Jobs has stuck to his guns.

The furor heated up this week with EMI Music's Alain Levy saying in a press conference that he believes Jobs will change his mind within a year. That could be because iTunes and the major labels are schedule to renegotiate their contract in the spring. Apple is also getting pressure from Sony (NYSE: SNE) BMG and Warner Music Group. Sony BMG has refused to allow its catalog to be sold through iTunes in Japan and Australia because of the pricing dispute.

Tiered System on the Way

Mark Mulligan, senior analyst, Jupiter Media, argues that a tiered system is inevitable and worthwhile.

"Flexible, dynamic pricing will enhance consumer value in many ways," he said. Some people may be willing to pay more to get an early release of a song, for example, and more consumers may be willing to try unknown artists' work if the price is lower.

Apple's one-price-fits-all structure works for computers, but not entertainment, Mulligan said.

"Apple came into the online music market with consumer electronics pricing rationale. We are now seeing this anomaly return to a music pricing rationale," he said.

Varying Value

Virgin and HMV music retailers both recently opened digital music stores in the U.K. that sell downloads using variable pricing.

"Not all music is worth the same," Mulligan said. "Madonna's latest album is worth more in the early weeks of release than an old Pink Floyd album. Though consumers will have to pay more for some songs, they will also get many much cheaper. Online stores can thus run sales in the same way that traditional music retailers do."

Although music retailers argue that online sales are eating away at CD sales, but are not as profitable, EMI on Wednesday announced a 12.6 percent year-over-year increase in profits to about US$150 million. Revenue rose 5.8 percent, to $1.6 billion in the same period.