In a posting aptly entitled “Recording industry announces plans to screw up remaining business model,” John Paczkowski at Good Morning Silicon Valley notes that some in the music industry are upset about Apple’s success with its online music store. Apparently, the store isn’t sufficiently bleeding customers dry, which may have something to do with its success:
The New York Times reports that some record labels, jealous of the profits Apple is making on sales of the iPod, are pushing the company to abandon the $.99 uniform pricing approach that has made iTunes so successful and instead adopt a multitiered model that would price songs by their popularity. New songs, they say, should be priced at up to $1.49; older, less popular songs at $.99 or less.
“I just think the music companies are now at a point where there’s too much money on the table not to insist [Apple accept variable prices],” Paul Vidich, a special adviser to America Online and former executive vice president of the Warner Music Group, told the Times. “The question is what do they want the profile of the business to look like going forward?”
Indeed. And beyond that, is the market for paid downloads established enough to sustain such a pricing adjustment in its dominant service? A sudden shift away from the $.99 sweet spot could send consumers fleeing back to the file-sharing networks.
Ironic, isn’t it, that the recording industry, which two years ago had no digital music strategy to speak of, is today trying to muscle the company that gave it a digital music revenue stream. “As I recall, three years ago these guys were wandering around with their hands out looking for someone to save them,” said Mike McGuire, an analyst at Gartner G2. “It’d be rather silly to try to destabilize [Apple], because iTunes is one of the few bright spots in the industry right now. [It’s] got something that’s working.”
For years, the recording industry has resisted the notion that its current business model is obsolete in the era of music-as-files. Even though the iPod and other MP3 players have effectively separated music from its physical medium, the industry itself has done little to embrace the mechanism that more and more people prefer for their music enjoyment. Instead, they’ve been busy suing teenagers who download music illegally and trying to prop up an outmoded distribution model. Music no longer needs to be trapped in circles of plastic, but the music business is so paralyzed by panic that they’re ignoring what customers want.
Is the industry so short-sighted that it would take the risk of knifing the most successful legal online music system? Probably. But disrupting the iTunes Music Store may just send many currently paying customers back to the illegal downloading.
If individual songs cost $1.49 each, many CDs would cost more if you bought them online than in a store. This doesn’t make any sense; the incremental cost of each album sold online is basically zero, whereas each CD obviously has the cost of materials embedded in the price. Many people will feel ripped off to pay a premium that provides them with nothing, so they probably won’t go back to legal online music buying. But it’s even less likely that they’ll go back to buying CDs, and that’s precisely the danger for the music industry.
