Steve Jobs argues with Sony over tiered pricing on iTunes

Mon, Feb 2, 2009

Analysis, Featured, News

The New York Times has an interesting article detailing a heated disagreement between Sony and Apple over tiered pricing.  Two things are apparent from this article:  Apple still has a lot of negotiating power, and Sony still doesn’t get this whole music downloading thing.

It’s well-known that record labels have wanted to experiment with tiered pricing on iTunes for quite some time, but Steve Jobs and Apple held onto the 99 cent price point with an iron grip.   It was therefore an interesting development when Phil Schiller announced at Macworld that not only would the iTunes Store be going drm-free, but that Apple would soon be allowing record labels to price songs on a 3 tier system, with more popular songs selling for $1.29, and older songs selling for 79 cents.  Record labels could also choose to maintain the popular 99 price point if they desired.

But what could have possibly forced Apple to finally agree to tiered pricing when it vehemently fought against it for so long?  Wireless downloads.

As devices such as the iPhone and iPod Touch continue to grow in popularity, consumers will inevitably be downloading music over the air at an increasing rate.  Apple needed to secure a licensing agreement for those mobile downloads, and so, the negotiations with all the major record labels began.

Apple was willing to allow variable pricing in the iTunes Store in exchange for drm-free songs, and the license to allow wireless music downloads.  All of the major record labels agreed to this deal, except for Sony Music.  Sort of.

Sony Music wanted tiered pricing to be implemented immediately after Phil Schiller’s Macworld announcements.  Steve Jobs, on the other hand, wanted to introduce tiered pricing in April.  Apparently this issue was so contentious that it led to an extremely heated phonecall between  Jobs and Sony’s chairman of music, Rolf Schmidt-Holtz.

A spokesman for Apple declined to comment, as did a representative for Sony Music. But chatter about Mr. Jobs’s combative tone on the call ricocheted around the music industry, and it was regarded as another display of his tough bargaining tactics, made possible by Apple’s position as the dominant seller of music.

Eventually, and perhaps not surprisingly, Jobs was able to maintain his position, and tiered pricing won’t take effect until April.  Steve Jobs was able to hold onto 99 cents-per-song pricing on iTunes for over 6 years, and it makes sense that a compromise on that issue would only take effect on Apple’s timetable, not Sony’s.

What is puzzling about all of this is Sony’s insistince that tiered pricing take effect immediately.  It seems like such a minor and insignificant point, and if anything, shows how Sony continues to not “get it” when it comes to music.  Negotiating with Apple, by all accounts, is not a pleasant experience.  You have to pick your battles wisely, and truly fight and argue over what’s fundamentally important to your business.  In the grand scheme of things, tiered pricing arriving in either January or April is undeniably insignificant.


, , , , , ,

1 Comments For This Post

  1. Peter Says:

    Depends on what music Sony will be releasing between January and April.

    Say a new album from an enormously popular singer (I have little knowledge of popular music anymore and less knowledge about what label the few I do know have signed with). A single which will probably generate 5,000,000 downloads. An extra 1.5 million dollars wouldn’t be a bad thing.

eXTReMe Tracker