[Rumori] Digital music services jack up prices

[Carrie McLaren]

Downloading music gets more expensive

http://www.azcentral.com/business/articles/0407downloading07-ON.html

Ethan Smith
Wall Street Journal
Apr. 7, 2004 11:00 AM

To see the future of online music prices, look no further than "Fly 
or Die," the new album by rock-meets-hip-hop trio N.E.R.D.
For months, digital-music services have been touting albums for $9.99 
to entice more people to buy online. But Apple Computer Inc.'s iTunes 
Music Store has been charging $16.99 for "Fly or Die," while Roxio 
Inc.'s Napster service sells the 12-song collection for $13.99. Both 
prices are higher than the $13.49 that Amazon.com charges for the CD 
itself. The same pricing shifts are showing up on albums by a growing 
slate of artists, from Shakira to Bob Dylan.

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.
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.

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

Revenues in the music industry have been dragging in recent years, in 
part because of the rise of illegal downloading services. Raising 
digital-music prices could spur additional illicit downloading. 
Weaning people off those illegal services by giving them an 
alternative that they consider viable is critical to the industry's 
future profitability.

N.E.R.D's "Fly or Die" is far from the only album that now costs 
significantly more to download from iTunes than to buy on CD. And 
many high-profile albums from two of the big five music companies, 
Sony Corp.'s Sony Music Entertainment and EMI Group PLC, are now 
priced on iTunes and its competitors well above the $9.99 norm. Sony 
artist Pete Yorn's "Musicforthemorningafter," for example, costs 
$13.99 on iTunes and $10.88 on average in retail stores, according to 
the NPD Group. Albums by EMI artists from Kylie Minogue to Blur also 
cost more in digital than physical form. (EMI also distributes 
N.E.R.D.)

The reason this disparity is so pronounced at EMI and Sony is that 
both companies routinely set wholesale prices for online albums 
higher than their competitors, according to people familiar with the 
matter.

A much smaller number of titles from the other major music labels 
also cost more than $9.99 on iTunes. A handful of albums from 
Bertelsmann AG's BMG, Warner Music Group, and Vivendi Universal SA's 
Universal Music Group also cost more online than they do as CDs. But 
these tend to be double discs such as OutKast's "Speakerboxxx/The 
Love Below," which incur higher costs in certain kinds of royalties 
when sold online than as traditional CDs.

"There's a lot of experimentation in the industry," says Peter 
Csathy, president and chief operating officer of Musicmatch Inc., 
which sells digital music.

The music companies are reluctant to talk openly about their 
wholesale-pricing strategies, but they are quick to blame the 
retailers for higher prices. A spokeswoman for EMI, for instance, 
stresses that the retailers, not record companies, ultimately set the 
prices consumers pay.

However, the digital-music services say they base their retail prices 
directly on the wholesale prices the music companies charge. "Our 
pricing comes when the fees come in from the labels," said 
Musicmatch's Mr. Csathy.

ITunes, the market leader among downloading services, and its 
competitors offer music at two distinct price points: Single tracks 
cost 99 cents. A full-album has generally cost $9.99, regardless of 
how many songs are on it.

Napster was until recently the lone holdout among the major online 
services on full album prices, charging $9.95 for numerous titles 
that cost between $12.87 and $16.99 on iTunes. But two weeks ago, it 
relented and created a higher tier of album prices, set at $13.99.

Separately, Walmart.com, the online arm of Wal-Mart Stores Inc., 
recently rolled out a slightly cheaper 88-cents-per-track price. Many 
observers, however, argue that any advantage conferred by the 11-cent 
difference will be offset by a user interface that early reviews have 
called less friendly than those of other services. Executives at 
competing services also contend that research shows that consumers 
don't care much about price differences within the band of about 75 
cents and 99 cents.

The issue of online music prices raises philosophical debates for 
music executives. Some executives, for example, believe they should 
be charging a premium for the online versions of older tracks because 
consumers may be willing to pay more for harder-to-find material.
-- 
carrie mclaren
stayfreemagazine.org
carriemclaren.com
ph: 718.398.9324