Friday, September 01, 2006

iTunes' 99-Cent Rule

Music industry execs, for a long time, have been fighting Apple to soften their fixed-price rule for songs. Currently, every track on iTunes sells for 99 cents. The music execs argue that popular songs are worth more than less-popular songs, so consumers should be charged more for them. This is simple supply-and-demand, and most Economics-101 students would agree with this line of reasoning - variable pricing can be good for everyone.

The Digital Music Weblog has a great take on this though, defending Apple:

I've said this before. A buck a tune works on a very simple level for most music buyers. It's easy to equate one thing with another; One buck? one tune. When you bring a sophisticated "black box" price structure to a service like iTunes, you increase the amount of decision making required for the user to make a purchase.

99 cent downloads make the purchase a clear choice, which simplifies the buying decision. When you introduce a more sophisticated pricing structure to the mix, the music fan is forced to have a more complex internal dialogue.

Do I like this song? What price is it? Is it worth the premium? Maybe I should just wait until it's 99 cents like the other songs I bought. If I buy this higher priced song, does that affect the number of songs I can buy in total?

The true fact of the matter is, supply and demand law doesn't apply to digital downloads. I _know_ that song will still be there if I come back later. Applying a tiered pricing structure to digital downloads applies a false market force to the equation; consumers have grown smarter about the methods used to fleece them.
I'm not sure if I completely agree. But it is interesting to see how notable Long-Tail markets (like Apple and Netflix) have had a lot of success with fixed pricing, where "premium" or "hit" content doesn't carry a premium fee.

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