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My Profile Top News Reuters top ten news stories delivered to your inbox each day. Subscribe You are here: Home > News > Technology > Article Home Business & Finance News U.S. Politics International Technology Internet Entertainment Sports Lifestyle Oddly Enough Health Science Special Coverage Video Pictures Your View The Great Debate Blogs Weather Reader Feedback Do More With Reuters RSS Widgets Mobile Podcasts Newsletters Your View Make Reuters My Homepage Partner Services CareerBuilder Affiliate Network Professional Products Support (Customer Zone) Reuters Media Financial Products About Thomson Reuters Variable iTunes pricing a moneymaker for artists Sun Jun 21, 2009 1:35am EDT Email | Print | Share | Reprints | Single Page [-] Text [+] By Antony Bruno and Glenn Peoples DENVER/NASHVILLE (Billboard) - In April, soon after Apple gave labels the ability to set different prices for their songs on iTunes, every track on Pink Floyd's "Dark Side of the Moon" was raised to $1.29. Some music fans complained about these price increases, and many technology executives and bloggers proclaimed that labels were making the wrong move. But while sales of individual tracks from "Dark Side of the Moon" dipped by 11%, album sales remained steady. And all sales combined generated about 12% more revenue in the six weeks after iTunes implemented variable pricing than they did in the six weeks before that. These are the results labels were hoping for when Apple relented and began selling music at three price tiers: 69 cents, 99 cents and $1.29. They certainly put enough work into getting there: It took years of negotiation to get Apple to break its one-price-fits-all format. Playing with pricing won't solve the music industry's biggest problem: Digital revenue is increasing too slowly to compensate for the decline of CD sales. But variable pricing will help labels bring in more money from online downloads, according to the results so far. A Billboard analysis of Nielsen SoundScan data on February-May sales of hits and a sample of popular catalog songs shows that "Dark Side of the Moon" isn't an anomaly. While variable pricing made sales volume decline, higher prices compensate for that to create more revenue. Not surprisingly, results vary. The demand for more popular tracks is less sensitive to higher prices, so sales don't decrease as much. Most less-popular tracks suffer a larger sales decline and see only marginal revenue gains. There are also notable, if isolated, examples of songs that sell so much worse at a higher price that they bring in less money overall. The math is simple. So long as sales for higher-priced tracks don't fall more than 29%, labels take in more revenue from $1.29 tracks, after factoring in wholesale rates, distribution fees and mechanical royalties. Sales of the weekly top 40 tracks -- most of which now have the higher wholesale rate -- fell about 11% in the six weeks after the launch of variable pricing. But retailer revenue from those tracks rose about 10% after the price hike. That means labels took in 20% more revenue for those songs. "A $1.29 vs. 99 cents price point has not made a notable difference in consumers appetite for online music," Pali Research analyst Richard Greenfield says. "On the album side, you've seen variable pricing for a while and it's not clear that it's had a notable negative impact, so I'm not sure why the single environment would be different." Other factors surely influenced sales. A seasonal sales dip often takes place after the first quarter. It happened this year, too: Sales of all tracks, most of which have the same price, declined 5% during the six-week period following the introduction of variable pricing. The top 200 digital tracks dropped 8.5% during this time. Making the situation more complex, the price changes took place gradually. On April 7, 33 of the top 100 tracks on iTunes were priced at $1.29; by June 11, 72 of the top 100 had that price. To measure the impact of price changes alone, Billboard examined more than 70 catalog tracks from popular acts with consistently strong sales -- Stevie Wonder, Bob Marley, Bon Jovi, Jack Johnson, Billy Joel, Creedence Clearwater Revival, Sublime, Norah Jones, ABBA and others. The songs were chosen because they sell steadily but haven't seen spikes from TV exposure or media coverage. So looking at their sales should isolate the effect of price changes. It's important to note that the size of Billboard's sample is too small to have statistical significance given the thousands of catalog songs sold on iTunes. But it offers a compelling picture of how variable pricing has helped labels so far. In the six weeks after iTunes introduced variable pricing, the songs that Billboard looked at sold 20.9% less than they did during the previous six weeks. That's a much steeper drop than that of the most popular titles. By way of comparison, the top 40 tracks on Billboard's Hot Digital Songs chart declined only 10.8% in the same time frame. But even this deep drop in unit sales resulted in a net gain to the bottom line. Consumer spending on the catalog tracks dropped about 2% and net revenue to labels rose around 6%. The revenue increase from those catalog tracks has only a fraction of the weight of the top 40 tracks. In a typical week, for example, the number one track in the country will sell many more copies -- sometimes twice as many copies -- as the combined total of all the catalog tracks in Billboard's sample. Billboard also looked at track sales from albums in which some or all tracks were raised to $1.29. The results varied but each example showed a decline in unit sales greater than the total market's 2% drop during the six-week period. That's the forest. To really gauge the impact variable pricing can have on sales, one has to examine the trees. Individual results for specific artists show how careful labels have to be when they use their newfound pricing power. Continued... View article on single page Share: Del.icio.us Digg Mixx Yahoo! Facebook LinkedIn Next Article: Steve Jobs received liver transplant: report Also on Reuters Spitzer in spotlight; can comeback be far behind? Obama "ready to fight" for new financial agency Slideshow Slideshow: World Refugee Day More Technology News Steve Jobs received liver transplant: report Smaller crowds greet new iPhone | Video Streaming music service Spotify basks in praise Activision says may stop supporting Sony PS3: report Eight percent admit to downloading video illegally More Technology News... 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