Episode #86: What Does Apple’s New iTunes Pricing Strategy Really Mean?

| Dr. Mac's Rants and Raves

Well I woke up this morning... and you were on my mind. 

Wait. Wrong song. Let me try again.

Well I woke up this morning and I couldn't get the song "Bargain" from the Who's Next album out of my head. So I fired up iTunes only to discover that while I had several complete albums by The Who and a few songs from other albums (including Who's Next) in my library, I did not have the complete Who's Next album. 

That wasn't acceptable so I clicked a few times and found that the iTunes Store offered an expanded and remastered version of Who's Next for $11.99. 

Who's Next at iTunes for $11.99

Not bad, I thought. But just as I was about to click the Buy Album button a thought popped into my head... "I wonder if it's cheaper at Amazon.com? After all, Amazon has much of the same downloadable music as the iTunes Store and often at a lower price."

I was thinking that maybe I'd save a buck or even two but lo and behold, Amazon offers the same 16 track version of Who's Next for just $8.99.

Who's Next at Amazon for $8.99

 So it wasn't one, or even two, but three bucks cheaper!

I checked to make sure I was comparing apples to apples (pun intended) and I was -- both had the same tracks and were encoded at the higher (256kbps) bit rate I prefer, both were easy to download and compatible with iTunes (as well as other audio players, not that it matters to me), and neither was copy perverted (aka "digital rights management" or "DRM").

Tech Note #1: Yes. I do know that Apple's iTunes Plus songs are encoded at 256kbps using AAC and Amazon's songs are encoded at 256kbps using MP3. And yes, I know that some of Amazon's stuff is ripped at a variable bit rate that averages 256kbps, (Who's Next, for what it's worth, was ripped at a constant 256,) And yes, I know it could be argued that AAC files are slightly higher in quality and/or slightly smaller in size. But the difference is so minor in my eyes (and ears and hard disks) that I consider the two pretty much equal. 

At this point you can surely guess the outcome -- I bought Who's Next at Amazon.com. 

Now on any other day I'd have chalked up the price difference to typical Apple chutzpah (look it up) and that would have been the end of it. But as I sat in the dining room drinking my first cup of coffee this morning, an article in the business section of my local newspaper, the Austin American Statesman, made me give this subject some deeper thought. 

The headline read: New iTunes pricing strategy could mean more profits for record companies.

You know, I was at the Macworld Expo Phil-note (Keynote by Phil Schiller) and heard him announce this, but it meant so little to me that I promptly forgot it. Anyway, I read the story, yawning a bit, until I got to the last two paragraphs: 

It also became apparent that consumers weren't entirely concerned about price and were more influenced by whether songs they bought online worked easily with their music players. For instance, for more than a year, Amazon.com beat iTunes on price with song downloads at 79 cents and 89 cents and most albums between $5.99 and $9.99. Although those songs could be transferred seamlessly to iPods with a downloadable program, most consumers haven't bothered to make the switch.

Recording companies noticed. Though none would comment on the record for this story, privately they say that Amazon's inability to become the dominant force in song sales indicates that consumers aren't considered "price-sensitive." In other words, people are willing to pay more.

Tech Note #2: You can read the whole piece by Ryan Nakashima here.

Put another way, Apple charges more because it can. 

At this point you might think I'm about to go off on a rant about how horrible it is, or how Apple should be ashamed of itself for gouging the consumer this way. But you'd be wrong. Way wrong. Instead, I think this is a good thing and here's why: I am one of capitalism's biggest fans. "What the market will bear," is music to my ears. Because, for example, without free market competition I'd have had to pay at least $11.99 for an album I just bought for $8.99. 

Is America a great country or what? 

So the bottom line is this: While I may be a loyal Apple fanboy at heart, when Apple prices a commodity item, such as an album or a RAM upgrade, significantly higher than the competition, that's when I draw the line. 

If you are willing to pay Apple more for something you could buy elsewhere for less, as the Statesman article implies, then God bless you. As for me, my loyalty only goes so far. At the end of the day I'm a cheap SOB and if I can buy the exact same product elsewhere for significantly less money, that's exactly what I'll do.  

And that's all he wrote. . .

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11 Comments Leave Your Own

Brian Satchfield

While I won’t argue that it’s worth the extra price alone, iTunes AAC encoding is vastly superior to MP3 encoding.

For those who don’t care to bother with such details, AAC is an audio encoding derivative of MPEG-4 technology, the most modern and exhaustive set of digital compression algorithms available on a wide-scale basis. MP3 is an audio encoding derivative of MPEG-2, which, while certainly high-quality and efficient, especially at the time of its release, is not up to modern standards. It’s still very popular because it’s adoption is so wide spread. (There was no MPEG-3.)

It’s generally accepted in the media compression community that MPEG-4 compression is up to twice as efficient as MPEG-2 at Web-media data rates. So, basically, a 128 kbps AAC file (encoded at a 16 bit depth, 44.1 kHz sampling frequency and at a constant data rate) is of equal quality to a 256 kbps MP3 file with those same encoding parameters, and is half the file size. Both sound incredibly good when considering how much smaller the files are compared to their original uncompressed PCM masters, and both sound very similar, especially when listening through consumer-grade earbuds. So, in practice, your iTunes songs are generally going to be of up to twice the quality as your Amazon songs at a given data rate.

Can everyone hear the difference? Maybe not. Does the difference justify a higher price? Certainly not to everyone. But the difference is there. Try it yourself. Take one of your favorite CD tracks and encode it as a 256 kbps MP3 as well as a [half-the-data-rate] 128 kbps AAC and then listen to those encoded songs on quality loudspeakers or headphones. You may be surprised how similar they sound. Then encode the song as a 256 kbps AAC file and see if you hear the improvement. For most audiophiles, AAC is the way to go for a given data rate and therefore file size.

P.S. - Amazon’s periodic $1.99 album sales are awesome!

Bob LeVitus

Brian,

I’ve done the experiment many times… I can’t hear much difference (if any) at bit rates higher than 192, using AAC or MP3, even with my best earbuds and/or speakers. There are certainly very, very subtle differences in sound quality but not enough to justify the extra $3 for Who’s Next.

I wasn’t trying to convince the audiophile community… they know what they like and what it’s worth to them. But I do think most non-audiophiles would be hard pressed to identify the difference between 256kbps AAC and MP3.

For what it’s worth, the last time I tested this stuff (for The Little iTunes Book, I think), I said that a 128kbps AAC file sounded better than a 160kbps MP3 and possibly as good as or even better than a 192kbps MP3. But above 192kbps the difference to my ear is so slight it doesn’t much matter to me.

Bob  

At the same price, or even a small differential I think I’d choose the AAC versions for all of the reasons you state. But in this case the

davebarnes

I buy all my songs at PirateBay.org.
Much cheaper.

azarkon

It’s important to note here that kbps is a measure of file size, not audio size.  Like all Lossy audio codecs, both MP3 and AAC cut out more data at the edges of perception, dynamic spectrum, high and low pitches.  These algorithms are also designed to be used with standard lead-singer-with-band music, such as rock, pop, or country, and keeps the vocals the clearest.  The compression is much more audible with classical or jazz, where timbre is more important.  Additionally, as we age, our ears deteriorate, and listening to loud music speeds these losses—which like the compressed audio, go out first at the fringes with higher, lower, softer, and microtonal pitch distinctions being the first.  For many people, CD quality PCM will exceed the capacity of your ears, and some moderate level of compression will go unnoticed.

Terrin

I do not think Apple charges more simply because it can. To say that ignores the whole publicly fought war between Apple and the labels. Apple has publicly come out swinging against the labels because it wanted a simple to understand pricing scheme for customers, and no DRM. The labels wanted variable pricing, lots of DRM, and the ability to tie certain purchases to others.

The labels wanted more control back to do the same old thing they always do: rob from both the artists and consumers. Apple had to be stopped from having so much control. So, even though Apple publicly wanted DRM free songs, the labels side stepped Apple and made an initially limited to one year deal with Amazon, who has been willing to allow the labels to dictate whatever prices they want. Further, they allowed Amazon to have DRM music, without offering the same to Apple. Of course, Amazon sometimes has lower prices: the labels are giving it more favorable terms to take market share from Apple, and 2) Amazon is likely selling songs at close to break even for the same reason.

People like iTunes, and thankfully the Labels attempts to dethrone Apple have so far failed. So, both Apple and the labels have discovered that they need each other. Apple has decided to give some ground on variable pricing, and the labels have given Apple DRM free music.

If I purchase music online, I will stick with Apple even if I pay more for the music because 1) the experience is good, and 2) Apple has publicly been willing to resist the labels calls for changes to Apple’s business model that is friendly for the labels, and not so much for consumers.

Brian Satchfield

Bob,

The differences in audio quality between MP3 and AAC grow more subtle at higher data rates, for sure. Beyond around 320 kbps or so, the differences are more limited to details found in higher frequency sounds, the tightness and clarity of bass frequencies and nuances of natural sounds such as unprocessed vocals, piano sustains and the like. The soft brush of a jazz snare, the staccato notes of a well-recorded rock cymbal fill and the plucks of an upright bass are some examples of where differences can be heard.

The type of music also plays a role in what differences can be heard. Music styles that are more electronic-based or make use of a lot of processed sounds tend to be less organic and subtle differences in musical passages are often just not there to be heard. This is in no way a negative comment about that style of music. But in those cases, I’d say the differences between codecs are slight above 256 kbps. And let’s not leave out the quality of the original recording; that can play a role as well.

I recently purchased several Rush songs from both iTunes and Amazon but didn’t feel like I was hearing all I should have, even on some of the older recordings which don’t benefit from modern recording techniques. I went out and used my last remaining Circuit City gift card to purchase the actual Rush CDs and was quite surprised at what I discovered that was missing from my compressed computer versions.

I don’t disagree with your conclusion that significant differences in pricing isn’t justified simply by using a different audio codec, especially when the music is being purchased for use on iPods and computer systems. If a consumer finds an MP3 version of an album for $3 less than its AAC counterpart, I’d probably have a hard time arguing against purchasing the less-expensive alternative. As I noted before, I’m a sucker for those weekly specials. However, for serious music listening on quality sound systems, the differences between MP3 and AAC can be pretty dramatic in many cases. That said, REAL audiophiles don’t purchase any kind of compressed music for critical listening - they buy audio CDs, DVD-Audio, etc.

This brings me to my final point, which is, the current generation of music purchasers is growing up on highly-compressed audio recordings and not having the opportunity to develop those critical listening skills. I think this fact may play a role why I’m so passionate about this topic; most musicians, audio engineers, producers, mastering engineers, equipment manufacturers, etc. work extremely hard at creating a particular sound and at obtaining the highest quality recording only to then have their long nights of performing and mixing dumbed down to a highly-compressed digital audio file; and this is often the only version of their art that some of their biggest fans will ever hear.

Don’t get me wrong, I love iPods and iTunes and Amazon and the ability to store my music collection on my computer and to take it with me when I’m on the go. The technology is actually pretty astounding. I just wish we as an industry spent as much time educating the public on ways to appreciate and discover the subtleties, nuances and differences in musical art as we do trying to lump it all into a single technology catch-phrase.

I’ll end by stating that I applaud your efforts in explaining technology to the masses; you take complicated subject matter and make it much more understandable. I’m a frequent reader of your work and wish we had more minds like yours out there!

JulesLt

DaveBarnes - you may get all your stuff from the PirateBay and thus think you’re being clever or rational, but . . .

a) You’re a pikey git / cheapskate
b) You’re not taking part in the economic system which invests in creating work, at varying degrees of risk, in return for (they hope) future rewards.

And you know, all the defenders of this stuff come up out with rubbish about alternative business models, but the stuff people are sharing and downloading ISN’T stuff produced under these business modesl, but the stuff produced by a highly-capitalised, high-investment system.

Basically, right now, you’re relying on free-loading off those of us who do pay, but if we all acted in the same way, the type of things that will be produced will change enormously.

Anyway, back to the theme of the article - I agree - varying prices, competition and shopping around are a good thing. Equally it let’s labels compete with each other (in the old days, a friends label competed by ensuring all their releases were 60% of the price of a major label LP).

Bob LeVitus

Brian: Thanks for the kind words. I appreciate them. I agree with all the points you make. Furthermore, you made one point I wish I had thought to mention:

With the audio gear I use to listen to most of my music—my iPhone, iPod, car stereo, desktop docking speakers, and my Mac with AudioEngine 5s—the differences between AAC@256 and MP3@256 is almost completely unnoticeable. And even Apple Lossless and/or uncompressed AIFF doesn’t sound _that_ much better for most of the music I listen to, even with really good earphones (and I’ve got a few sets). Even on my Onkyo “theatre in a box” system in the den, which is the “best” audio system in the house, the differences are subtle.

davebarnes

@JulesLt

Actually the Piratebay comment was a joke.
We get our music from AmieStreet.com and eMusic.com AND from ripping the 300+ CDs that we already own.

Substance

Surprised that no one has brought up the issue of CD “clipping” or “loudness wars” into the discussion. 

http://en.wikipedia.org/wiki/Loudness_war

So even when you buy a CD, you may not be getting the full sound that you think you’re paying for.  Thank you record companies, your collective greed knows no bounds.

robofly

Music producers are about as audiophile as their customers. They tend to care as much as the market does (i.e., not too much).

About MP3 encoding at mid-to-low bitrates—it matters what your encoder is. MP3 is a file specification, not a set of instructions. How to get to a compliant MP3 file is a challenge for your own technical knowledge and ingenuity.

iTunes is acknowledged a very competent AAC encoder, but it makes mediocre MP3s. So you can often buy a better MP3 than iTunes would make at home. That narrows the quality gap with AAC.

Lastly, quality you can’t hear is completely wasted on you, so if your ears are fried or if you’ll never listen except through earbuds or $100 desktop speakers, it won’t hurt you as much to shop based on price and convenience.

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