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

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. . .