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Labels bet flexibility boosts iTunes sales
Mon Apr 6, 2009 9:45pm EDT
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By Yinka Adegoke
NEW YORK (Reuters) - Apple Inc and major music labels are betting that the launch of three-tier pricing at the iTunes Music Store will boost music sales with a new mix of song-based packages and give consumers more options.
Apple will announce its new three-tier price points at 69 cents, 99 cents and $1.29 on Tuesday, according to several people familiar with its plans. Since opening in 2003 all songs in the iTunes store have been priced at 99 cents.
The previous 'one price fits all' strategy has long caused friction between Apple and the music labels, who argued that songs should be priced differently to reflect their perceived value by consumers.
The labels will finally get their wish.
While the majority of songs will still be sold at 99 cents, a certain number of new hit songs will now be raised to $1.29. Many older catalog songs will now go for 69 cents.
Perhaps anticipating a consumer backlash against price increases executives, who spoke to Reuters on background ahead of the launch, pointed out that for every one song they raise to $1.29 they will be reducing 10 songs to 69 cents.
But these executives said the biggest advantage of the new pricing would be flexibility to create new digital products beyond the album.
"We're thinking outside of the disc to reach a new generation of consumers who are able to consume music on any device, it's not just the track any more," said one music label executive, who was involved with the talks, but did not want the label identified ahead of the launch.
For instance, a label could sell a brand new song and its music video for $1.29 or package it with a ringtone. The lower pricing could eventually mean that iTunes can sell albums at more competitive prices though early indications are that album prices will not change right way.
Major label owners like Vivendi's Universal Music Group, Sony Music, Warner Music Group and EMI Music say they can make money with more flexible prices and possibly help make music retail a profitable enterprise again.
"If we can gain traction with $1.29 that will be good for greater margin," said another label executive, also involved in discussions, but who did want to identify the record label.
Music sales have plunged as traditional retail outlets for CDs have shuttered and the growth in digital sales have slowed in 2008. Data from Nielsen SoundScan show album sales, once the profit engine of the music business, fell by 14 percent in the U.S.
Industry estimates show that 10 to 15 percent of albums account for 90 percent of all sales, according to Digonex, a dynamic pricing software company which has worked with major music companies including Warner Music.
"This is an opportunity for the labels to get the maximum they can for the music," said Michael Wanchic, vice president of digital media at Digonex. "The beauty of variable pricing is that if the prices are too high customers simply won't buy."
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