Asking fans to pay 30% more per track during the worst recession in
most people's lifetime is yet another ill thought out move by the major
music labels. They seem to have the idea that their recorded music is
an essential part of entertainment today, and thus they are entitled to
a high level of revenue to keep their failing business model going.
Higher Prices Reduce Sales
Higher prices may even lead to less revenue, according to
Billboard, which looked at what happened in the first few days:
"The changes in chart position between Tuesday and Thursday, however,
clearly show that higher prices had forced many songs to cede chart
position to lower-priced songs."
What's more, it is not in Apple's interest to help the major music
labels to promote more expensive music. Apple wants to promote people
having more music - of preferably higher quality. This takes up more
memory and therefore sells ever higher capacity iPods.
Those wonderful heads of the major music labels have forgotten a
major lesson from Marketing 101. If the organisations you are relying
on to market your product have interests opposite to yours, the
marketing campaign won't work. Even worse, in this case the customers,
the people paying for the music, can easily move to free.
The Upgrade Conundrum
Asking fans to pay 30¢ to "upgrade"' their libraries to better
quality, DRM-free tracks was yet another case of wanting a few more
dollars now and forgetting about the future. The current bosses seem to
be interested only in hanging on for the next bonus rather than growing
the business.
If the labels really wanted to have music lovers buying from more
distributors, they would have waived all fees so that everyone could
upgrade their library to iTunes Plus for nothing. Everyone could then
easily migrate away from iTunes and iPods.
As it is most people will only upgrade some tracks, those that they
really want at high quality, and will stick with "good enough" for the
rest. This means they will also stick with iTunes and iPods as long as
those too are, at least, "good enough".
The
iTunes Store is easily the largest distributor of paid digital
music and makes a profit, but it is not a major source of Apple's
profit. Indeed Apple always talks about having it break even. It is
there to make it easy for iPod customers to buy music, so they don't
have to buy CDs and transfer the tracks they want to listen to, and so
Apple can deflect legislation from organisations wanting to tax iPods
because of P2P downloads. It also keeps customers buying regularly from
Apple. All those successful small buys keep bringing them back to a
website where the new higher margin products are ready waiting for
them.
The App Store
The time when all those small buys were music has passed, and now
the music industry no longer has any kind of hold on Apple. The App
Store fills the role much better. More importantly the apps only work
on Apple products, and, at the current rate of growth, the number of
apps downloaded per month should be greater than music downloads within
two years.
The apps are mainly written by small companies and people who are
happy to make money and accept standard Contract Terms and Conditions.
This avoids long negotiations with companies that seemingly can't
recognise that all they own of value is a back catalog, and it is in
their interest as well as Apple's to make money from it.
Like apps, music can and should be an instant purchase. Hear a great
track, and if you don't know it, use Shazam and buy it. When tracks
cost more, that loop is quickly broken. Instead customers add it to the
shopping basket and may buy it later, so a good part of the advantage
of letting 30 million customers buy on their iPhone and iPod Touch has
been lost.
Killing $1.29 Tracks
All Apple has to do to kill the $1.29 track is fill the iTunes Music
Store landing page with the "best buys" and let customers see the most
popular tracks by price, so instead of Top Songs it becomes Top Songs
at 69¢ and Top Songs at 99¢. Feature more of the good bargain
albums.
As Apple doesn't accept or need payments from the record labels to
subsidise the home page, it can do what it wants, and now it's best to
sell bargains. People can buy two tracks at 69¢ for pennies more
than one $1.29 track. Phil Schiller's keynote stated that there would
be many more tracks at 69¢ than at $1.29; this probably means that
the labels have to cut the price of 2 or 3 other tracks for each
expensive track and perhaps have to provide a percentage of cheap
tracks for all tracks uploaded.
We can be sure that Apple won't be depending on the labels
generosity for what's sold cheap, so they should choose classic tracks.
As soon as the labels learn that expensive new music doesn't sell but
that tracks priced cheaply do, 99¢ should again be the top price -
and more people will buy instantly.
When music ruled, there was no competition. If you wanted to spend
time on the phone with friends, you had to do it at home. As soon as
you got in the car, you put the radio on whatever station was hot at
that time of day.
Music now has plenty of competitors for non-working minutes, if the
music is more than wallpaper. Games come with soundtracks. Facebook,
email, and tweets all take up time. If the labels didn't have their
heads in the sand, they would use what little leverage they have to get
Apple to allow music apps like Pandora and Last.fm to run in the
background on iPhone and the iPod touch.
Marketing Music
Another good approach is with paid podcasts and "trusted
guides". People need to hear good - and preferably great - music
often to want to spend more of their day with it. The labels just don't
know how to promote music any longer - they keep on doing it the same
old failing way, but expecting a different result.
So what has been achieved by raising the price of new tracks? Even
less revenue for the music labels, as the average selling price of
tracks will go down. And as soon as the labels can no longer afford to
pay large advances to bands, little new music will be released through
them. Their only future is in releasing and monetising their back
catalogs.
They need to digitise quickly and provide to iTunes, Amazon,
etc. at least their share of the 40 million + additional tracks that
Gracenote supports. Then start working with Apple and "trusted guides"
to introduce all the wonderful tracks to a new audience and who knows,
buying music may
once more be something that most teenagers do.
