Tiered pricing on iTunes to hit on April 7

Thu, Mar 26, 2009


Well, we all knew it was coming sooner or later.  The LA Times is reporting that the tiered pricing system for iTunes, which was announced earlier this year at Macworld, will go into effect on April 7.  Under the tiered pricing system, record labels will be able to sell tracks for as low as 69 cents, and as high as $1.29.  The 99 cent per song option will also remain.

The move, part of a new “variable-pricing” strategy that will also lower the price of selected songs, is an attempt by the music industry to wring more revenue from digital downloads in the battle to offset declining CD sales. Label executives contend the new pricing will allow them to offer packaged downloads of songs that might entice consumers to spend more on music.

Record labels have long wanted to experiment with tiered pricing on iTunes, but Steve Jobs and Apple held onto the 99 cent price point for as long as they could.  Eventually, Apple acquiesced to record label demands in exchange for drm-free songs, and more importantly, licenses to allow wireless music downloads.

One of the reasons iTunes became so popular was that it provided users with an easy and cheap way to get music.  99 cents for a song seems like nothing, and buying 15 songs in 5 minutes on a whim is probably something a lot of people can relate to.  That said, some are questioning if a higher price point for more popular songs will slow down consumers purchase habits.  Though only 30 cents higher, $1.29 seems a lot more significant than a measley 99 cents.

“The power of 99 cents will be harder for the labels to overcome than it would have been if they’d had this ability [to change prices] a few billion downloads ago,” said Frank Luby, a pricing expert with Simon-Kucher & Partners consulting, who has done work for Warner Music Group. “The longer a habit like that lasts, the harder it is to break.”

Related: Steve Jobs argues with Sony over tiered pricing on iTunes


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