3-Tier iTunes Pricing: What Do You Think?

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    Posted: 13 April 2009 06:35 AM #16

    Apple may be smarter than we know.  What if Apple had seen the variable pricing pressure coming from the labels far enough in advance to pre-test the market with “iTunes Plus”, which most people knew cost 30 cents more than the usual track?  And those were the newest songs, anyway.  The labels “get their way” with the $1.29 price point, but Apple’s already been there in a sense…and now songs are DRM-free, which is a nice value-add. 

    So really, even though Apple seemed to put up a good fight of trying to tell the labels that $0.99 is the best per-song price, was it really “forced” to do anything?  Apple’s iTunes Store customers were already inoculated to a considerable degree on $1.29 songs.  Of course there’s still $0.99 DRM-free songs, but the point is that $1.29 isn’t new to the iTunes Store.

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    Posted: 13 April 2009 02:20 PM #17

    Slightly OT:

    You know, I just don’t get it.  The record labels have SO MUCH stacked up against them:

    1. Decades of great music all competing for the same dollars in one place (iTunes, Amazon etc.).
    2. Free sharing of files between users, bit torrent, Napster clones etc.
    3. Weaker newer content.
    4. Supply and demand, digitally-speaking, favors LOWER prices as there is an unlimited supply of files (ie no such thing as an ‘out of print’ file).

    And yet they STILL refuse to take some simple steps to procure more sales.  Instead, they RAISE prices while providing NOTHING new.  They should consider the following:

    1. ARTWORK.  Maybe most people aren’t that into it - but guess what - most people weren’t that into walking around with portable music until the iPod craze came about.  I just spent two days uploading high-res artwork to my iTunes library.  Combined with GimmeSomeTune (lyrics plug-in for iTunes - AWESOME), I now get a huge 1 - 2 MP image of the album cover along with lyrics for most songs.  This makes listening just so much more enjoyable.  GimmeSomeTune also uploads lyrics to the iPhone!  I now get to read the lyrics while I’m out and about.  Record companies should go further - add liner notes, online links to various resources, forums, wikis, showtimes etc.

    2. Higher-quality files.  When sales are slow to down (and they are for the recoding industry), you provide a better product.  Let’s have better than cd-quality files.  This would put the nail in the coffin for physical media and spur new bursts of sales from those who are still not onboard with digital media.

    3. More hype for smaller, independent artists and a greater variety of genre.  Let iTunes be the place where new talent and musical styles are discovered.  Create a new section or area for new-comers, or user-uploads of music (filtered to some extent of course).

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  • Posted: 13 April 2009 03:46 PM #18

    The challenge is most music is not profitable for the labels. 80% (or more) of the industry’s music sales and profits come from 20% (or less) of their artists. Further, a return to a singles sales paradigm erodes gross revenue.

    Most professional music artists do not make a living off of their record sales. Their living dollars come from live performances. Artist advances, radio promotion, tour support, artwork, distribution costs, etc. erode margins.

    I see tiered pricing as capitulation by the industry that singles sell and iTunes (reluctantly on the industry’s part) is a means to re-establish economic viability.

    In many ways radio stills controls artist success and promotion remains expensive. Please remember on each song sold there’s a songwriter royalty, a music publisher royalty and possible a producer royalty before net dollars flow against an artist’s recoupable expenses toward an eventual artist royalty payment.

    Blame the industry all you want, but piracy is a villain that’s much responsible for higher music prices. Even $.99 cent songs has not eliminated the cultural proclivity to steal music, depriving the artist(s) of potential royalties and depriving songwriters of royalty income on every song track that’s stolen.

         
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    Posted: 13 April 2009 04:26 PM #19

    DT- I agree but I also disagree.

    With digital downloads, there is a 99% (I’d think) profit margin on the song sold (barring overhead).  So, while yes, cuts of each sale go to many different obligations, record companies traditionally horde almost all of the profits.  They are (IMO) scum in this regard.  This is why even major label artists with platinum records the first time out, need to tour.  The labels traditionally LEND them the money to produce the album and pay them back a VERY small percentage of overall profits.  After album #1, they are often broke, or still in debt as production costs almost always exceed the money that is initially lent out by the label.  It’s only after 2 or 3 successful recordings that artists make real cash.  And what do the record companies do to deserve such a reward?  Distribution and promotion.  But the former is no longer needed since iTunes is ‘self-distributing’.  As for the latter, well, they only promote the most probable, sales-garnering acts.  The rest fall by the wayside.  IOW, YOU the artist, need to make THEM money ASAP or you’re out.  This is unhealthy for the industry and is a big reason why so much ‘drivel’ and ‘poppy’ music is so prevalent.  It’s a very ugly and restrictive business and it has hurt popular music for decades.  iTunes offers us a solution (largely, by being able to bypass labels to a great extent).

    As for piracy, well - there’s a very simple solution to the problem - it’s in my post above.  Provide people with a much BETTER product and they will buy it.  If I get better-than-cd 7.1 high-res audio, beautiful album art, liner notes, lyrics, interactive content, discount tickets, links to specialized content like free downloads, videos and artist interviews - all for $0.99 - why would I buy the cd (and - less pollution)?  Suddenly, you get MORE and BETTER content for the same amount!  If I had a store that wasn’t selling enough widgets, I’d either lower the price, improve the widget or both.  And like I said above, there are a lot of audiophiles and other anti-mac, anti-digital folks out there that would suddenly be drawn to the new and improved content.  Finally, you could offer the whole shebang (lyrics, content etc.) for a $0.29 upgrade.  Once people get hooked on the better content, they will want to upgrade EVERYTHING and you get new revenue streams from old ones - kind of like the upgrade to iTunes plus but I don’t think that offers enough for your $0.29.

    [ Edited: 13 April 2009 04:34 PM by Mayor Quimby ]

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  • Posted: 13 April 2009 04:40 PM #20

    MQ, for years I worked as a record industry finance executive. I understand the industry’s financial matrix and the costs associated with artist development and production as well the costs of advertising, promotion, tour support, etc.

    It’s not an easy business. In some ways the costs associated with artist development are similar in style to the costs of software development. Sure there’s little marginal cost in each additional software unit sold, but that doesn’t justify ripping off software companies because someone would rather steal than live honestly.

    Why is it industries such as recorded entertainment content and computer software are the “villains” when it comes to justifying theft? Isn’t it always some big corporate conspiracy that people use to justify stealing what they choose not to buy?

    There’s no justification for theft of music. Prices aren’t going lower. The loss of revenue means less risk taking on developing and investing in new artists.

         
  • Posted: 13 April 2009 05:01 PM #21

    Mayor Quimby - 13 April 2009 07:26 PM

      As for the latter, well, they only promote the most probable, sales-garnering acts.  The rest fall by the wayside.  IOW, YOU the artist, need to make THEM money ASAP or you’re out.  This is unhealthy for the industry and is a big reason why so much ‘drivel’ and ‘poppy’ music is so prevalent.  It’s a very ugly and restrictive business and it has hurt popular music for decades.  iTunes offers us a solution (largely, by being able to bypass labels to a great extent).

    This is a commonly held belief but one that is not true. Labels work hard to break new artists and they have every economic incentive to do so. The labels desire to recoup their investment but often times the artists are their own worst enemies. I’ve seen groups on the verge of breaking out with a successful song or album only to have everything fall apart because the band members can’t figure out how to get along. This after a big investment in development, recording and promotion.

    I remember one group I had that was on the road. The group was doing a multi-state tour - a combination of concerts and radio appearances. A huge investment had been made in radio promotion ahead of the band’s appearances in each city on the tour as well as a hefty investment in tour support.

    The phone call came in. The bus driver stopped the tour bus because the band members were having a fight on the bus and he refused to move the bus until the band calmed down and safety on board was established. The fight started over one band member’s claim another band member snored too loud. As a result of this in-bus incident, one band member quit mid-tour and a replacement musician had to be found. The tour turned into a bust and all momentum was lost. The investment made in the group was significant and those dollars were all lost because the band fell apart over one band member’s alleged snoring volume.

    On more than one occasion I’ve seen success fall apart not because of some “greedy” executives at a record label, but because band members couldn’t figure out how to get along. Artists can often be their own worst enemies and that can be at everyone’s expense.

         
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    Posted: 13 April 2009 05:22 PM #22

    It is true DT.  Look at how much money is spent and where - labels love two kinds of acts - those that come with prepackaged followings and those that can ‘breakout’.  The others get some cash, of course, but very little in the grand scheme of things.  It’s the same business model artist reps (actors, photographers, musicians etc.)  follow - you have to demonstrate the ability to be profitable BEFORE they throw cash at you - and when they do, they make sure THEY get paid first (of course).  Basically, what I’m saying is that labels have moved away from the concept of ‘cultivating’ talent and favor money-makers more and more with each passing year.  With iTunes, the labels SHOULD be on the defensive and yet they are acting as if they have the same, or even more clout, than in years prior.  Silly.

    I have a cousin who works for a huge radio station and is very much involved with the major labels and we were discussing this sort of thing a few months ago.  His argument is that, well, you have to give people what they want, because that’s how you get ad revenue flowing.  But by doing so, you water down and destroy your other audiences because you’re so focused on one thing (what’s trendy).  IOW, you’re assuming that the listeners KNOW what they want.  My point is that they DON’T until YOU show them what’s good.  iTunes can break the oligarchy in this industry.  Ask yourself, DT, would Billy Holiday, The Kinks, Black Sabbath, Getz-Gilberto, Alice Cooper, The Smiths, Ben Webster etc etc etc have any chance at all today in this industry?  Of course not. If they’re not ‘marketable’, they’re out.  Labels and radio stations have the same responsibility that teachers in classrooms have.  They educate and lead.  If teachers taught what students wanted to learn, every high school classroom would be filled with Sony Playstations.

    What’s marketable changes from year to year but great music does not.

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    Posted: 13 April 2009 05:39 PM #23

    Put it this way - in the early 60’s Gordy & Co. started Motown.  They put the best musicians they could find in a room, hired the best songwriters they could find and then hired marketable singers to sell records and build the franchise.  On the surface, it would seem things have not changed but they have.  Today’s labels look at sales projections FIRST.  They assess marketability before they assess quality.  Berry Gordy wanted to put out the best music possible - thinking that if he did, it would sell.  He was right.  Today, it is the opposite.  They want to count sales before taking the time to cultivate talent and develop something worthwhile, something that can last.  When was the last time you heard a song on American radio that you felt would be around 30 or 40 years from now?

    iTunes is the answer.  Allow people to upload their music for whatever price they want (or for free).  Offer a youtube - like section where bands can self-promote.  It will be enormously difficult as there is so much garbage but it would be wonderful to see what’s out there and is not being heard.  At least, allow more bands to upload sans labels (maybe they do so now I’m not sure).

    [ Edited: 13 April 2009 05:43 PM by Mayor Quimby ]

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  • Posted: 13 April 2009 07:45 PM #24

    MQ, I’m not necessarily disagreeing with your points on music quality today. Like any business the music industry will push what will sell. It’s no different than any other enterprise or industry.

    For awhile I had a business assisting small record labels during start-up phase by providing operations and finance expertise while the entrepreneurs spent their time focused on what they knew best - artist discovery, development and marketing. I preferred working with small labels rather than larger ones. But even for small labels focused on artist development and a priority placed on quality, only a small percentage of artists would find success as recording artists. Often times the determiner was how much an artist was willing to work.

    Give me an artist willing to work 200 nights a year performing in small venues and keeps at it no matter the size of the previous evening’s crowd and I’ll show you an artist that has a better-than-average chance of finding career success.

    iTunes is a much better distribution system and I can see why it can cause the major labels fits. They lose control which can be a bigger concern than profitability. For independent artists and labels it is a far more egalitarian system.

    I’m a big fan of iTunes. I’m not a fan of people blaming “greedy” record labels as the justification for theft.

         
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    Posted: 13 April 2009 07:50 PM #25

    Mayor Quimby - 13 April 2009 08:39 PM

    iTunes is the answer.  Allow people to upload their music for whatever price they want (or for free).  Offer a youtube - like section where bands can self-promote.  It will be enormously difficult as there is so much garbage but it would be wonderful to see what’s out there and is not being heard.  At least, allow more bands to upload sans labels (maybe they do so now I’m not sure).

    I could see Apple having an independent Music Store similar to the App store.  But like you said, there would be lots of garbage to sort through.  I do suspect that there might be a minimum price to charge in order to cover Apple’s overhead.

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    Posted: 13 April 2009 08:08 PM #26

    Play Ultimate - 13 April 2009 10:50 PM
    Mayor Quimby - 13 April 2009 08:39 PM

    iTunes is the answer.  Allow people to upload their music for whatever price they want (or for free).  Offer a youtube - like section where bands can self-promote.  It will be enormously difficult as there is so much garbage but it would be wonderful to see what’s out there and is not being heard.  At least, allow more bands to upload sans labels (maybe they do so now I’m not sure).

    I could see Apple having an independent Music Store similar to the App store.  But like you said, there would be lots of garbage to sort through.  I do suspect that there might be a minimum price to charge in order to cover Apple’s overhead.

    Perhaps that’s it.  Charge them a $1,000 listing fee.  Or even $2,500.  That would encourage artists to drum up support to get ‘listed’.  Only the better acts would find the financial support.

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    Posted: 13 April 2009 08:09 PM #27

    Actually, independent artists (including yours truely) have been able to put their songs on iTunes for several years. One must use a third party distributor like CDBaby, Nimbit, or Tunecorp… but there are thousands of us happily being downloaded every day.

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  • Posted: 13 April 2009 08:15 PM #28

    It’s interesting how closely DT’s comments mirror Tom Hank’s “That Thing You Do” and Almost Famous.  I can think of few things more difficult to do than break into the music biz with so much talent around.  Exposure is so hard to come by which to me explains the mainstream issues more than anything.  I have a buddy here that just released a new album that is really great imho but gaining any kind of traction is a whole separate issue!  Give it a listen and I think you’ll see what I mean.

    http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewAlbum?i=305061793&id=305061747&s=143441

    They won’t be appearing on American Idol anytime soon due to age restrictions!  wink

    Two thumbs up for the Getz/Gilberto album as referenced above.

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    Posted: 13 April 2009 09:43 PM #29

    ...and Sabbath!!!

    Bill- Nice post.  I think it’s a chicken and the egg type of problem however.  It’s like I said in the teacher analogy - the latest generation won’t even KNOW that they’re missing anything.  It’s hard enough getting exposure but it’s even harder when the tastes and standards of millions have been watered down and diluted to such an extent.  You’re trying to sell the perfect hamburger and everyone is running across the street to McDonald’s to catch the latest “two-fer”.

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  • Posted: 14 April 2009 02:53 AM #30

    Mayor Quimby - 14 April 2009 12:43 AM

    ...and Sabbath!!!

    Bill- Nice post.  I think it’s a chicken and the egg type of problem however.  It’s like I said in the teacher analogy - the latest generation won’t even KNOW that they’re missing anything.  It’s hard enough getting exposure but it’s even harder when the tastes and standards of millions have been watered down and diluted to such an extent.  You’re trying to sell the perfect hamburger and everyone is running across the street to McDonald’s to catch the latest “two-fer”.

    Like any business, find and target your audience. If one’s goal is to create and perform good music and one has the talent, dedication and drive (not to mention realistic expectations) one might find success.

    My favorite artists to work with were the ones that showed at a meeting at the label’s office carrying a briefcase (or modern equivalent of business productivity regalia) and were serious about paying their mortgage or the rent and approached their profession with dedication and discipline. These artists were also the ones that spent advances wisely. They knew their product, understood their market and actually read their contracts. They also had smart managers who watched the numbers as closely as we did.

    My least pleasant experiences were with artists who thought it was an insult and unreasonable burden to suggest they attend a meeting before noon and who thought the only thing that separated them from shipping platinum product was a label staff that didn’t understand them and didn’t appreciate their talent, personal beauty and charm. It didn’t matter whether or not they they were volatile, childish and always demanding money. How dare anyone expect them to actually work? After all, they were natural stars. How come we didn’t see that?