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Downloading Music Gets More Expensive

Posted By Barry Ritholtz On April 24, 2004 @ 8:48 am In Music | Comments Disabled

WSJ.bmp [1]

How do you compete with “free” ?

Most intelligent people would say via non monetary, value added offerings — unique items, higher quality, better service, more value, competitive perqs, official memberships.

How does the music industry compete with free?

THEY RAISE PRICES:

“Unburdened by manufacturing and distribution costs, online music was supposed to usher in a new era of inexpensive, easy-to-access music for consumers. In many cases, buying music online is still cheaper than shopping for CDs at retail outlets. But just a year after iTunes debuted with its 99-cent songs and mostly $9.99 albums, that affordable and straightforward pricing structure is already under pressure.

All five of the major music companies are discussing ways to boost the price of single-song downloads on hot releases — to anywhere from $1.25 to as much as $2.49. It isn’t clear how or when such a price hike would take place, and it could still be months away. Sales of such singles — prices have remained at 99 cents — still account for the majority of online-music sales.

So much for that venture.

Let’s recall the many illegal (or barely legal) ways diss their customers:

We tried the minimum advertised price [2] method of illegally maintaining high prices [3];

We’ve already done conspiracy and illegal price fixing;

How about “bundling” ?

“The industry is also mulling other ways to charge more for online singles. One option under consideration is bundling hit songs with less-desirable tracks. Another possibility is charging more for a single track if it is available online before the broader release of the entire album from which it is taken. There is also talk of lowering the price on some individual tracks from older albums.

Or, conspiracy:

“Several record-company executives acknowledged that pricing changes are being discussed at all five major companies.”

What a coincidence! Either its dumb luck that all 5 companies happened upon this idea at the same time — perhaps all morons think alike — or someone has been unlawfully chatting about pricing policies to someone else.

Perhaps there is a glimmer of hope. Someone in the industry recognizes the process of developing alternative distribution channels:

“The new pricing developments come as digital-music sales are growing steadily. Some 25 million digital tracks were sold in the first three months of this year, versus 19.2 million for all of the second half of last year, according to Nielsen SoundScan.That growth is why some in the industry are uncomfortable with the talk of price increases. Most music-company executives believe that the download market is still in a critical early-growth stage, which could be disrupted by raising prices. “For us right now the issue is not, ‘Do we make another $300,000 by raising the price five cents?”‘ says a music company executive. “It’s making sure the market grows.”

Wow, at least one person in the music industry has half a brain — but they are so embarrassed about it, they had to be quoted anonymously.

If I could say just one thing to a room full of music industry execs, it would be this:

Price competition works [4]. Capitalism is a system that has already proven its merits, time and again. Stop living in the 19th century, and join the free market system.

Source:
Downloading Music Gets More Expensive [5]
Fledgling Services Raise Prices on Some Hot Albums; Will 99-Cent Songs Survive?
ETHAN SMITH
WALL STREET JOURNAL, April 7, 2004; Page D1

http://online.wsj.com/article/0,,SB108129203279876029,00.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/04/downloading-music-gets-more-expensive/

URLs in this post:

[1] Image: http://online.wsj.com/home/us

[2] minimum advertised price: http://bigpicture.typepad.com/comments/2004/02/if_its_tuesday_.html

[3] illegally maintaining high prices: http://www.ftc.gov/os/2000/05/mapanalysis.htm

[4] Price competition works: http://bigpicture.typepad.com/comments/2003/12/music_sales_ris.html

[5] Downloading Music Gets More Expensive: http://online.wsj.com/article/0,,SB108129203279876029,00.html

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