iTunes price increases mean slower sales for music labels

Posted:
in iPod + iTunes + AppleTV edited January 2014
Since Apple granted music labels the flexibility to set individual song prices between $0.69 and $1.29 on the iTunes Music Store, growth of digital music sales has slowed, one music executive revealed Tuesday.



According to Peter Kafka at MediaMemo, Warner Music Group revealed Tuesday that it has seen digital music sales slow down since the price increase took effect in April 2009. Digital album downloads grew 5 percent in December, down from 10 percent in the September quarter and 11 percent in the June quarter. Digital revenue is slowing as well: Warner saw 8 percent growth in the holiday quarter, versus 20 percent a year before.



Warner CEO Edgar Bronfman Jr. reportedly said the pricing change has been a "net positive" for Warner, but conceded that a 30 percent price increase during a recession was not the best move.



The executive went on to comment during Tuesday's quarterly earnings conference call on the effect Apple and its iPad announcement has had on the publishing industry. Specifically, Apple has offered publishers some flexibility in pricing their e-books, as opposed to the more strict approach the company has taken with music.



"During the earnings call, Bronfman sounded a bit wistful as he noted the book industry’s apparent success, with the help of Apple, at raising prices above the $9.99 floor Amazon (AMZN) had set," Kafka wrote.



Bronfman reportedly said, "It’s interesting that the book publishing industry, on the iPad, has much more flexibility than the music industry had."



Last August, Apple's iTunes was found to be a quarter of all music sales in the U.S. That makes iTunes by far the largest music retailer, ahead of second-place Walmart with 14 percent. In all, digital downloads make up 35 percent of music sales, and iTunes accounts for 69 percent of online sales. But despite iTunes' popularity, CDs still remain the top-selling format, with 65 percent of overall sales.



In early 2009, Apple convinced record labels to remove digital rights management from iTunes music downloads. But in the process, the Cupertino, Calif., company conceded price flexibility. Starting last April, some popular tracks saw a 30 percent increase in price, from 99 cents to $1.29.



But as Apple looks to take on Amazon's Kindle in the e-book business, the company has offered publishers the ability to price new hardcover titles higher -- from $12.99 to $14.99 -- than Amazon's $9.99 price. Apple's deal influenced publisher Macmillan to push Amazon to allow it to adjust its prices, to which the bookseller reluctantly agreed. Higher prices on the Amazon Kindle are expected to coincide with the launch of Apple's multimedia iPad in late March.



It is Apple's entrance into the e-book market, with its new iBooks application and accompanying iBookstore, that has caused a new rift between publishers and Amazon. Following Macmillan's lead, Hachette Book Group and HarperCollins have both announced their intent to ink new deals with more flexible price structuring with Amazon.



Publishers have said the increased prices will not lead to greater profits, but will protect the viability of the book marketplace by giving authors and agents the ability to make more money on every digital sale. Some have said they believe the current Amazon $9.99 pricing model hurts retailers who sell the hardcover editions by devaluing books.
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Comments

  • Reply 1 of 139




    I mean really, having established the overall value of their music previously at the .99USD-1.29USD price point and then the recording companies begging Apple to be allowed to raise the prices - consumers didn't LEAP at the opportunity to be gouged again??



    Stupid, stupid consumers. When will we learn? The demand in the market doesn't drive pricing, the need for yet another house on the French Riviera for a music executive does. As the aging elephant that is the current profit model for the music/entertainment industry does it's death dance we just have to make sure we are a safe distance from it as it thrashes around.
  • Reply 2 of 139
    So Apple devalued music and Amazon devalued books. Will this mean slower sales for ebooks as well ? Has Apple dug iPad's grave before its launch?
  • Reply 3 of 139
    The music industry is going to put itself out of business.



    It raised prices and has seen a flattening of growth. And still wishes for more price flexibility.



    Apple is doing to Amazon something no one has been able to do to Apple - introduce a compelling product and sales platform pair.



    iPod and iTunes

    iPhone and App Store

    iPad and iBook



    the iPod superiority as a device insured the success of iTunes

    The iPhone + App Store will dominate the smart phone industry

    The iPad+iBook/App Store/iTunes trifecta will be interesting to watch. I can see it going both ways (going main stream, or being relegated to niche status).



    iPod put YOUR music in your pocket.

    iPhone puts the wealth of the internet in your pocket.

    iPad... A boon for train commuters, casual browsers and book readers. Not what I call a robust market segment.



    But I am going to buy one anyway.
  • Reply 4 of 139
    Quote:
    Originally Posted by AppleInsider View Post


    According to Peter Kafka at MediaMemo, Warner Music Group revealed Tuesday that it has seen digital music sales sales slow down since the price increase took effect in April 2009.



    "In other shocking news today, it was revealed that dropped objects fall to earth and water is wet."



    I'm sure at least ONE person working for the record companies took freshman economics? Anyone? Anyone? Bueller?
  • Reply 5 of 139
    And I've yet to see ANY song at 69 cents. Even stuff from the 70's or 60's is full price. And god forbid some 70's song was just in a movie - price magically jumps to 1.29....
  • Reply 6 of 139
    The music companies have gotten exactly what they wanted. Unit sales are down so they pay the artists less money. The higher per unit prices mean total revenues stay the same or increase. The best of both worlds for them, but just the opposite for the artists and consumers.
  • Reply 7 of 139
    jccjcc Posts: 209member
    Boy, these executives are REALLY dumb. They're so dumb that they just love to kill their own business. They should have kept the 99 cent price and sell more songs but instead, they want to be greedy and push people to steal their music instead. Good job!



    Bronfman's an idiot for saying that the publishers are better off getting a higher price. What that will do is force people again to steal their books rather than buy it. Who do you think loses in the end? Not the consumers. Publishers should have kept the $9.99 policy that Amazon wanted. After all, they know what the consumers want since they have the data which supports higher demand below the $10 price point.
  • Reply 8 of 139
    Quote:
    Originally Posted by AppleInsider View Post


    Bronfman reportedly said, "It?s interesting that the book publishing industry, on the iPad, has much more flexibility than the music industry had."



    Music and books are quite different businesses. Music is a commodity, with zillions of units being traded. It also had a huge piracy problem. By comparison books are a niche market now, with units being sold to few readers (compared to music listeners). There was also very little piracy in the book market compared to music. Music vendors can easily make up in volume what they lose in unit price. Book sellers don't have as much margin to do that.



    eBooks are the future of publishing, but they will never sell in the quantities that songs do. So Bronfman is either being disingenuous or is just dense.
  • Reply 9 of 139
    More utter nonsense from the backwards music industry. Especially with the book comparison. Well, dummy, $9.99 is artificially low for a book considering new hardback typically sell for $18-30. Even on a big sale, they usually only dip to about $13.99 or so. CDs on the other hand top out at $16 generally and can normally be found for $12 regular price and as low as $7 on sale.



    Plus, books are different animal. No one's clamoring to buy one chapter of a book at a time because the rest of the book sucks.



    Complete neanderthals are in charge of music labels these days.
  • Reply 10 of 139
    Quote:
    Originally Posted by TEKSTUD View Post


    So Apple devalued music and Amazon devalued books. Will this mean slower sales for ebooks as well ? Has Apple dug iPad's grave before its launch?





    NOPE.

    The iPad will still be a HUGE SUCCESS

    iBooks is just a feature. A single App, if you will.



    Wait till you start seeing all the sophisticated, powerful, yet easy & intuitive-to-use iPad Apps.



    The iPad will be a HUGE SUCCESS because of the endless possibility of the Apps.



    No need to refute. Time will tell all.
  • Reply 11 of 139
    As they say record execs, be careful what you wish for.
  • Reply 12 of 139
    stompystompy Posts: 325member
    Quote:
    Originally Posted by AppleInsider View Post


    "During the earnings call, Bronfman sounded a bit wistful as he noted the book industry?s apparent success, with the help of Apple, at raising prices above the $9.99 floor Amazon (AMZN) had set," Kafka wrote.



    Bronfman reportedly said, "It?s interesting that the book publishing industry, on the iPad, has much more flexibility than the music industry had."



    Sure Edgar, the music industry and publishing industry are identical. Rotten Apple. If only you had been in charge, you'd still be on top of the world.
  • Reply 13 of 139
    Quote:
    Originally Posted by AppleInsider View Post


    Publishers have said the increased prices will not lead to greater profits, but will protect the viability of the book marketplace by giving authors and agents the ability to make more money on every digital sale. Some have said they believe the current Amazon $9.99 pricing model hurts retailers who sell the hardcover editions by devaluing books.



    No matter how many times they repeat this statement, I can never understand. If anyone does, could you please enlighten me? How is it possible that the model will help them make more money "on every digital sale" but not lead to greater profits?



    More money per sale = more profits. If not, that means the higher prices hurt demand, and if that's the case, then it is just a dumb move and they would not do it, as no one would gain from it.
  • Reply 14 of 139
    Quote:
    Originally Posted by johnmcboston View Post


    And I've yet to see ANY song at 69 cents. Even stuff from the 70's or 60's is full price. And god forbid some 70's song was just in a movie - price magically jumps to 1.29....



    ditto. I haven't seen one at all, nevermind seeing one worth wanting.
  • Reply 15 of 139
    Quote:

    Since Apple granted music labels the flexibility to set individual song prices between $0.69 and $1.29 on the iTunes Music Store, growth of digital music sales has slowed, one music executive revealed Tuesday.





    Yep, stupid move there.



    Price is a signal, it can tell people which song is worth buying and which isn't.



    Now faced with higher prices for select songs, people began to conserve and not buy the 99¢ songs as much, this lead to a overall decrease in sales.



    It would have been better to keep the songs all at 99¢, this way let people judge which is good, they will buy more this way than being told by a higher price what is good and what not is good.





    The "Great Recession" isn't really to blame for decreased digital music sales, people are buying more computers than ever before to kill idle time at home to save money, self entertain themselves, including buying music. It's the poor decision to allow variable prices, but the music industry thought Apple was getting too powerful and wanted to put the brakes on.





    Stupid, stupid, stupid. But then that's the music industry for you.
  • Reply 16 of 139
    Quote:
    Originally Posted by TEKSTUD View Post


    So Apple devalued music and Amazon devalued books. Will this mean slower sales for ebooks as well ? Has Apple dug iPad's grave before its launch?



    I'm not sure 'devalued' is the right term. I would say re-valued, as napster and other song sharing schemes had reduced the value of a song to functionally nothing.



    The 0.99 USD price point was small enough to entice people back from file sharing sites, and allowed them to consume the media the way they wanted, why spend $20 for a CD when all you want is one song?



    iTunes cut the knees out from under the CD market, the price of a CD in the late 90s was significantly higher than it is now.



    Black markets form when demand price or volume do not intersect supply price or volume. And file sharing is nothing more than a black market.



    The music industry's arrogance led to it's fall, not the internet.



    As for books, it's a different model completely. And one that is only marginally relevant. My wife and I have thousands of books. And several hundred electronic books. We don't own a kindle or other eBook device. We read them on our phones (iPhone(me), Palm Centro (wife).



    I think that Amazons price was bound to fail, especially when they tied thier price to exclusivity. Why should a publisher cut a better deal with an electronic vender, undercutting it's own physical sales? The Kindle and all book readers are nice, but they will not change how literature is consumed (ala iTunes vs. the CD).



    No, in the future, Amazon will sell eBooks that are iBook compatible, because they don't have a compelling device.
  • Reply 17 of 139
    They could lower the price of music via digital download and make even more money but that would further erode the sale of physical media. The record industry isn't ready for that. Or, individuals who have worked their way up the corporate ladder thinking one way, are simply too obtuse to pursue an entirely different approach. Some folks who have enjoyed financial success stop thinking because they don't begin to question their approach being as it's that approach which they perceive has brought them the wealth they enjoy.



    Even when the path to success is clearly mapped out, there is a refusal to embrace it. The human mind, especially operating within a corporate framework, is a curious beast.
  • Reply 18 of 139
    You can't really compare books and music.



    Books, really can't be consumed through other means. Sure, you can go to the library or borrow the book. Maybe buy it used after several weeks to months after the initial release. But most people who buy books - buy books. Many keep them to be enjoyed again.



    Music, on the other hand can be consumed on the radio for free. Satellite radio for a fee. It may be torrented or downloaded by other means, eschewing the exchange of money for a product. Further... the general lack of quality music these days in pop music -- means that music is disposable and not "timeless."



    Pricing is psychological. I don't think I have ever come across a 69-cent song on iTunes. Most these days are $1.29. I know I buy less. It is easy, mentally at least, to click "BUY," when I am buying a 99-cent song. 30-cents more... I think about it.
  • Reply 19 of 139
    Well this deserves a big fat, duh!
  • Reply 20 of 139
    gazoobeegazoobee Posts: 3,754member
    Quote:
    Originally Posted by AppleInsider View Post


    ... Publishers have said the increased prices will not lead to greater profits, but will protect the viability of the book marketplace by giving authors and agents the ability to make more money on every digital sale. Some have said they believe the current Amazon $9.99 pricing model hurts retailers who sell the hardcover editions by devaluing books.



    This is absolute BS.



    These "publishers" give the author a few pennies on each book even though the production costs are ridiculously low. Even a fifty percent increase in the selling price would just up each of the parties profits by the same amount. So instead of making a dollar on a $9.99 eBook the authors will make $1.50 and the publishers (who contribute very little to the value of the product at all), will still make the lions share of the profit.
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