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The Back Page - Online Music Prices Must Be Lower Than CDs

by - May 4th, 2004

In the ongoing battle to save what many consider to be a beleaguered industry, the RIAA and its member Big Five recording labels have made one misstep after another. Perpetually inflating prices in the midst of an economic downturn, even while production costs dropped; fighting all forms of digital file sharing even though said file sharing was increasing interest in both listening to music and purchasing music; trying to force customers into renting music through online sites; reducing the number of acts being published, and thereby pushing away all but the blandest of bland tastes; trying to sell crippled CDs that wouldn't even play, let alone be stored on, computers, the device that more and more music lovers are using to play there music...It's been one mistake after another.

Indeed, the recording industry is its own worst enemy, if not the enemy of both its customers and the artists that provide the product they ply. Of all industries that have been driven (into the ground) by the greed of those at the top, the recording industry may epitomize just how stupid an industry can act.

There is a new form of outright stupidity in the works, or so it seems. Last month, the Wall Street Journal reported that the labels wanted to increase the price of individual songs by perhaps 50 cents a piece, or maybe even to more than US$2 a piece.

The Wall Street Journal is one of those newspapers I trust when it comes to news reporting, and I have little doubt that such a pricing movement is alive and well in some form or another -- perhaps select songs would be so priced -- within the recording industry.

After all, if the obscene profits from 99 cents a piece is delicious, the obscene profits from twice that will be even better! Never mind, of course, that it would choke the very life out of the legal online market. Such an idea is completely insane.

Perhaps they do understand that, or perhaps Steve Jobs was able to use some form of threat, coercion, or perhaps event his Reality Distortion Field to bring them to their senses. With the first anniversary of the iTMS come and gone, Apple's initial licensing agreements came to an end. Such would have been the time for the labels to jack up the prices. Indeed, many Apple nay-sayers said that would be the case a year ago when Apple first launched the iTMS.

However, songs are still priced at 99 cents a piece, so all must be well in the online music business?

I don't think so.

During the conference call held last week, Newsweek's Steven Levy asked if the labels had tried to get more money from Apple. Steve Jobs refused comment, noting only that Apple continues to charge 99 cents per single.

My personal opinion is that Apple is having to pay more for songs -- reportedly 65 cents a piece originally -- but that Apple elected to hold retail pricing at 99 cents. Not out of the goodness of his heart, of course, but rather because he realizes it will be a disaster for both the iTMS and iPod sales for online songs to cross that US$1.00 mark in any meaningful way.

Mr. Jobs is a master of manipulation, and it's possible he was being artificially cagey on this issue, but my faith in the labels' ability to completely b0rk up something that is seemingly going right outweighs my distrust of Steve Jobs' potential for manipulation.

What really makes me furious about this, however, is the fact that online pricing for downloads is already WAY too high! Worse yet, it is the labels making all the profits. Apple makes at best a few pennies per song, while the artists continue to make the same, or less. The labels, which heretofore bore all the costs of making, distributing, warehousing, etc. physical CDs are making the same percentages on each song, while bearing none of the real costs of digital distribution. The idea of actually raising prices is complete and utter horse pucky.

As I have said from the beginning of this new direction for Apple, 99 cents a song is really an outrage. It might be a necessary outrage while we move to this new way of doing business, but with distribution costs being almost nothing, 25 cents to 50 cents per song is what I consider the high side of a fair price, at least in the long run. In other words, I understand the need to price songs the way they are being priced in the short term, but I expect them to come down sooner, rather than later.

Mr. Levy of Newsweek, it seems, agrees with me, and published a fantastic look at this subject. From that article:

Case in point: pricing. In his renegotiations with the labels, Apple's Jobs kept the per-song price at ninety nine cents a song. Generally, entire albums are available for $9.99.

But some popular albums are inexplicably higher. Buying all 14 tracks on Jessica Simpson's "In the Skin" on iTunes cost 13.86. The physical album, including a bonus DVD with scenes from her wedding, is $13.39 from Amazon. Sheryl Crow is perhaps the artist who has most aggressively promoting legal downloading.  Her 2003 greatest hits album has a song missing on iTunes; buying the 16 others will cost you $15.84. The physical CD with all 17 songs cost $9.99 on Amazon.

This is crazy. Online prices should always be much lower than physical CDs. The economics of downloading favor high volume. CDs have to be pressed, warehoused and shipped, but in the online world, you transmit a file to the vendor and just collect money. When a super popular artist like Norah Jones emerges, forget about convincing a hundred thousand people to download it at $13-get a million people to make the mouse-buy for five bucks. It's nice to sell 100,000 Norah Jones albums online at $13, but even better to sell 2 million at five bucks a pop.

He's right. He's just plain right. It's so simple, one would think that even a greedy, stupid record exec could see it. Music prices must come down for in the digital age for the industry to once again become a healthy and powerful force. There are so many ways for recording labels to develop new revenue streams without resorting to, or trying to, gouge customers that simply won't be gouged. Most will stop buying digital downloads, and a good many will go back to being pirates and thieves.

began using Apple computers in 1983 in a high school BASIC programming class. He started using Macs in 1990 when the Kinko's guy taught him how to use Aldus PageMaker, finally buying a Power Computing Power 100 in 1995. Today, Bryan is the Editor of The Mac Observer, and has contributed to the print versions of MacAddict and MacFormat (UK).

You can send your comments directly to him, or you can also post your comments below.

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