Comments on: Will consumers determine iTunes prices?

With seemingly everyone lamenting that iTunes' songs will now cost $1.29, they should remember that consumers determine prices--at least in theory.

[jsjohnson]

So funny...I actually used to use Amazon cause it was easy to find stuff but never really accepted the pricing. I moved to (and this is not an advert so no flaming) MP3Sale which is a LEGAL paid site and I get songs for like 15 cents each. I pay with a paypal account so I don't have to worry about some two bit hacker getting my account info.

[grtgrfx]

Glad you're giving your money to Russian mobsters who don't forward a penny to the artists or publishers. There's no such thing as a legal pay site which charges pennies for music (or anything else). They're stealing the content, just like BitTorrent users do, and they're just clever enough to set up web sites in lawless countries like China and Russia to exploit Western suckers.

[floydearlsmith]

Hi Greg,

You should have studied your microeconomics a bit more before writing this piece. An increase of 30 cents - just over 30pct - in price is a much greater increase in profit.

Let's say that all the costs for a song are 79 cents; profit then is 20 cents. A further 30 cent increase is "pure profit", with profits now 2.5 times what they were before.

You will no doubt lose a few sales, especially because 99 cents is a great price point. But sometimes consumers like the "snob appeal" of paying more for the best, newest, hottest, etc., so that will get you some of your losses back.

But the main point is, each customer who buys is worth 1.5 new customers. So you have to lose more than half the customers you would have had at 99 cents before the new price really hurts. (And if some of your "lost" customers buy when the price does drop to 99 cents, you haven't lost on them either, you've just failed to gain.)

Cheers,

Floyd

[theArgiope]

True... but if you ask anyone in the industry, they'll claim it costs $2 to make the song, so they're losing money anyway.

These are the same people who claim a loss on their taxes each time a teenager burns a mix CD for his girlfriend.

[grtgrfx]

We've heard (unofficially, since Apple refuses to comment) that the actual cost to the online sellers is close to 95¢ per song, and in fact Apple loses money on almost all of it's iTunes store sales. The sole reason for iTunes to exist is to drive iPod sales. Since the music labels will surely charge Apple more for the "premium price" songs they sell, this is not going to change.

As far as Amazon underselling Apple, they are using low-priced music as a "loss-leader" hoping that site visitors will put more stuff in their baskets during their music shopping, especially to get over the $25 minimum for free shipping.

The only businesses earning any money in online sales are the labels.

[theArgiope]

Is anyone here over the age of 10?

I don't mean that to be offensive, but it seems no one here remembers paying $3 for a single-song cassette tape, or $5 for a vinyl 45 back in the 80s.

Paying $1.29 to enjoy a song that appeals to you is still very cheap. I understand the principal concern of raising prices, but inflation is a part of life.

By the way... most intelligent people back up their data storage, so "computer crash" is not a viable deterrent.

Also, scientific study proved that less than the top 1% of audiophiles can distinguish audio quality in bit rates higher than 192kbps. You folks discounting digital distribution on account of lower quality than raw CD data are not fooling anyone... you must be industry interns posing as consumers to spread rumors. Shameful!

[infinitely]

That was physical media. This is digital. ie no expenses for packaging, shipping, artwork, pressing, "breakage" etc. I wouldn't mind much if I knew this price increase would go to real artists, but we know it will fill the labels' coffers and never reach them.

[dumbspammers]

"The blogosphere is full of gloomy warnings that Apple's new pricing structure will alienate customers. But aren't consumers supposed to have the final say on market prices, at least in theory?"

That works when there is competition in the marketplace. Are you blissfully unaware that most users don't even know there are other MP3 players than the iPod?

And if you think consumers have the final say, go down to Best Buy and tell them you want a new laptop, let's say an HP dv7-1245dx, for $300, including a 3-yr on-site support contract, and oh, yes, with Windows Vista Ultimate.

Or go buy a Mac Book Pro, and pay what's it's really worth (e.g., pretty much sticker price).

[theArgiope]

"Or go buy a Mac Book Pro, and pay what's it's really worth (e.g., pretty much sticker price)."

You really think so? You mean, that extra thousand bucks just for trendy aesthetics? Pffft... lol

(kidding - I won't even speak of my data around a Windows machine)

[jaffreywali]

Called elasticity of demand. The more inelastic the demand is the more revenue will be added as you increase price. So what the economist is saying is that we don't know what the slope of the itunes demand curve is :)

Luckily I paid attention in econ 101.

I am assuming the more ipods out there and the more people use itunes to buy and organize content the more inelastic the demand is going to be, at least in the short term. Would I pay $.30 cents more compared to Amazon to have the convenience to still use itunes or one app for all my music purchases and synch it to my iphone, ipod? me yes. Others, I don't know...we'll see.

[BtmnHatesRbn]

Ah, inflation.

[Toulinwoek]

Apparently, Sandoval's status as the "media and entertainment" guy gives him no insight into understanding consumers. LOL

If people will pay "Apple" prices for iPods when there are comparable, and in fact better devices available for much less (Creative ZEN X-Fi for example), it's idiotic to think those same people are going to do anything but murmur and gripe but pony up the extra thirty cents. Calling this the "biggest test ot consumer loyalty" is absolutely laughable! If iPod users stood the "test' of overpriced hardware, a quarter and a nickle is nothing. Apple will rack up here.

[theArgiope]

Well - the labels continue to press CDs, so those expenses are still factored into digital distribution.

I feel ya, though. I don't get into popular music much anymore. It's hard to find, but when you do come across some independent artists that you can enjoy and support directly - you feel much better about paying for your music.

You have to understand that the human mind cannot naturally handle the concept of wealth. That is why those who have it go insane with greed.

[mattflaschen]

"There are limits to this concept, Elberse said. Apple could "jack up the prices to $10, and sales of music at that figure may not cover the losses of people who would refuse to buy at that price." "

What is this, middle school microeconomics? I would expect a little less stating the obvious.

[imchas]

why would anybody pay even the 99 cent price let alone the new $1.29 pricing?
Itunes is a joke. You can find all the music you want from other sites for 9 cents a song or less.
Apple has so many people glamoring over everything they make and do that they loose their sences. Don't get me wrong, I own an Ipod, but when it comes to downloading and buting music, why would anyone want anything but an MP3 that can be played and recorded on everything besides Apple products. Who wants DRM protected music?.

[PrdAmrican]

9 cents a song? Who has this? Somebody legally allowed to sell them? Please do tell...

[jgills240]

Thats why you download from Amazon instead, there's always a cheaper price somewhere else if you're willing to search for it, ahh the beauty of the internet.

[katie0828]

This is why I'm going to buy my mp3's from Amazon from now on.

[paulimusmaximus]

I think as long as others, like Amazon Mp3 have the same price, they will get it easy. I mean Verizon charges $1.99-$2.99 for 15 seconds of a song as a ringtone, plus if you don't have a data plan, it's another $1.99 on top of that for downloading a megabyte of data, and they get it.

And don't forget, it's still cheaper than buying a whole CD, since you don't have to spend $15 to get 10 crappy songs, and 4 good ones.

[javagirlpc]

Oh, boo hoo...the record companies spent years ripping off the customer and now they've gotten Apple to conceed and charge customers more. I respected Apple for keeping the prices low. By doing that people bought more music, I know I did. .99 cents was my price point. Not sure how much I'll be buying at $1.29. The greedy music companies just want to manipulate the online music market like they did with the retail industry for years. Too bad Apple caved in to them. Now the door is open to higher prices and who knows what.

[unknown unknown]

I am not even going to bother, I'll just goto Amazon and buy it there for $0.99. You can be sure the record companies will use everything at their disposal to make sure songs stay at a $1.29.

This just more proof the record companies are more interested in getting more money out consumers than creating any perception of value or other incentive to buy.

[gfr01]

Screw the music moghuls and screw Apple. This is just more incentive for P2P downloads. Guerrilla war against the copyright mafia will increase.

[lkrupp]

It's easy for thieves like you to justify their unethical behavior by claiming to be a protester. But theft is theft in the end and you are a thief.

[ladyofargonne]

Compared to the full price of cds that have only one or two songs I like, $1.29 is still a bargain. I haven't listened to anything that would be considered contempory in many years.

I love my iPod - I use iTunes. Call it a throw back to the notion of "bleeding six colors."

[elgarak]

I find it curious that no one has figured out what drives digital music downloads... besides Apple.

It's rather simple: The defining criteria are content and convenience. Consumers need to find the music they want (i.e., one needs a big catalog. A lot of smaller stores with limited genre offerings stumble over this), and they must be able to easily play the music in any way they want.

Price is secondary... within limits. Apple was reluctant to go over the $1 limit because of this limit. The current maximum price is still pretty low, but now Apple has established iTunes as the leading online music store, so people are less likely to switch. Also, the failure of selling songs at the premium can probably blamed on the labels who decide the prices, or, better wording, decide what songs they consider premium-worthy -- what has changed in percentages Apple takes in?

[PrdAmrican]

Well, for me it won't make a lot of difference since I already own most of the music that I listen to. I have paid the extra 30 cents in the past on select items to get the higher quality/DRM free version if it wasn't available from an alternate source (ie Amazon). I will most likely pay the extra if/when I hear something I want to own. I like having the ability to listen to what I want when I want, although there are times that a radio experience is wanted also.

It's a funny thing... I have never liked the "rental plans" when it comes to music... and I cannot say why exactly. However, I do like satellite radio (especially for long drives) which is really the same thing. I should say I DID like satellite radio up until the merger... I liked the old XM, and it seems more like Serius now, which I did not like. Picky I guess.

What I do like, and use all the time (now) is slacker.com and pandora.com. I tend to use slacker more since I have a slacker dedicated radio, but I have both players on my blackberry and my itouch... totally free "rental" type music... I highly recommend you try one or both of them for those times that your personal music collection isn't cutting it...

[azzuro2006]

I believe in the free market system but the record companies clearly don't. I think its ridiculous that an album on-line is more expensive than buying the CD. The CD is better quality and the price you pay includes the margins of the retailer, the wholesaler and the cost of manufacturing and the packaging. In theory, the cost of an album on-line should be around half the cost of buying the CD in the store. If they did that, they would be shocked to find how sales of music would sky rocket and the record companies would make the same per album on-line as they do on CDs in the store. They should also give consumers the option to purchase the music lossles as well. I will buy music on-line when I feel like I am paying a fair price for a good product (same sound quality) considering the costs the record industry saves by selling on-line.