iTunes – Sticker Shock & Basic Economics
April 17, 2009 at 4:45 pm | In Marketing, Music Business | Leave a CommentTags: 1.29, 69, 99, apple, April, Chart, Demand, Economics, iTunes, price, Pricing, scarcity, song, Sticker Shock, title, track, value, Variable, variable pricing
iTunes introduced variable pricing at the beginning of April. Early research is showing a decline in sales for titles bearing a $1.29 price point. This is absolutely no surprise for 2 reasons:
1) Sticker Shock: The iTunes customer is conditioned to a 99cent track price. $1.29 is a 30% increase. Most of us notice a 30% price hike on any product that we regularly purchase (gas, groceries, etc.) so it’s no surprise that the impulse buyer is going to prioritize their list of desired music and think twice before buying. The good news for the labels is that sticker shock wears off quickly and as soon as the price structure feels like the new standard, people will resume their impulse behavior.
2) Basic Economics: When you raise the price of a product, you reduce the demand. Conversely, you usually lower a price to stimulate demand. This is why even the top tracks are suffering on the charts right now. People consume based on their purchasing power and a higher price per track reduces the number of tracks a consumer can afford. The bad news is that the laws of economics are rarely broken, but a move to variable pricing is a healthy move. All tracks aren’t created equal, and although scarcity doesn’t exist in the world of digital music, value still determines demand. A top selling title has more value than a low selling title, therefore, it yeild a higher price. The consumer’s shouldn’t have to pay the same price for tracks of different value, and the labels or artists shouldn’t have to charge the same price for different products either.
If I had to guess, I’d say that sticker shock will be a moot point in a few months and there will be a more consistent list of higher and lower priced tracks by the fall. Once most of the top titles are $1.29 and most of the low titles are $0.69, the charting will look normal again.
Sucky iPhone Apps
October 27, 2008 at 5:00 am | In Mobile | Leave a CommentTags: app, apple, application, cyrus, iphone, miley, money, program, sell, tickets
This reminds me of when I bought 2 Miley Cyrus tickets and banked about 200 bucks almost instantly.
Yeah – I had to become a card holding Miley Cyrus fan club member, but that 25 bucks was well worth it considering the end result. Everyone gets upset when people make money off of ridiculously simple things like this and I understand. But if you grossed a few grand from designing a nametag iPhone app, you would be the happiest guy in the world.
So – Let’s all go make stupid iPhone Apps.
iTunes Shutting Down?
October 4, 2008 at 1:39 pm | In Music Business | Leave a CommentTags: apple, digital, iTunes, label, Music Business, NMPA, price, publishing, retailers, variable pricing
I blogged a while back on thin margins for Digitial retailers, but given the recent publisher fiasco, where they were asking for a rate hike to 16cents, I felt it necessary to reitterate with this link.
iTunes certainly wouldn’t shut down and risk losing the 90% powerplay they currently have on the market, but it does show that the margins are thin enough to get them on board against the NMPA. The bigger issue is that iTunes doesn’t want to discuss variable pricing, but if the labels pass the hike onto the retailers, they would have no choice in the matter to keep the store open and in the green. Variable pricing has been a long standing issue between the labels and Apple, and any crack in that foundation could lead to significant ground for the labels.
No Profit in Downloads
July 14, 2008 at 8:45 pm | In Music Business | Leave a CommentTags: 99, apple, business, download, Industry, iTunes, label, margin, Marketing, Mastercard, mechanicals, merch, Music, Napster, profit, Rhapsody, royalty, strategy, Visa, Zune
Let’s face it, the Labels are going to take 70% and that’s fair. What? It’s Not? Of course it is…They spent the thousands in studio and production cost, not to mention manufacturing and distribution, only to have the artist sell more T-shirts and stickers at their merch table because all of their fans are hooked up via BitTorrent. It’s not like they pocket the 70% anyway. There’s overhead, mechanicals, and other royalties that have to be paid, not to mention someone who has to sit down and sift through the data so the auditors don’t pitch a fit.
The question is…Can you be profitable with the other 30% and the answer so far is an overwhelming NO!
You may think you’ve struck gold when you find that company that allows you to setup your own storefront for 10 or 20 bucks, pull in the titles you want to sell and then let’s you make 10 to 15 cents per tracks sold, but the reality is that noone shops at these stores. iTunes and Amazon are satisfying 95% of the digital consumers out there and Rhapsody, Napster, Zune, Passalong, and many other reputable brands are fighting for the loose change already.
After you realize this doesn’t work, you can try building your own store from scratch and licensing in the labels in order to keep more of the profit. The reality of that is that in order to be your own retailer, you have to engage with Visa and Mastercard who are going to take 15 cents per transaction and then another 2 or 3 percent of everything you make leaving you with the same 10 to 15 cents you had in the first scenario. It forces you into developing a marketing strategy around bundling and encouraging larger purchases and that’s where you lose touch with your consumer. They don’t want to spend more than 99 cents and if you make them, they will still find what they want and buy it…just NOT from you.
The economics just aren’t there. They just don’t work. It’s barely worked for iTunes and the dream of selling digital music is driving company after company into the ground. It’s not worth the hassle and if you are looking to be entertained with your money, you’d be better off buying lots of fireworks or just flushing it down the toilet.
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