Back in April, we looked at some early analysis from Billboard that suggested that raising the price of songs from 99 cents to $1.29 was hurting sales but increasing revenue. In the comments, everyone pointed out that no conclusions could really be drawn from a policy that had only been in place for a matter of days. Well, it’s been a few months now, and the data is in:
Since February, weekly sales of tracks has dropped from the 25 million-per-week range to 21-22 million in July and 20-21 million in August. […] It must be noted, however, that the cause of the drop in track sales – variable pricing and $1.29 at iTunes for most hit songs – has resulted in an increase in wholesale revenue to labels.
So there are about 4 or 5 million fewer songs being sold on iTunes now, but who cares because the labels are making more money! This is exactly the kind of shortsighted bullshit that got the record companies into the mess they’re in. Sure, revenue might be up a little, but there are fewer people buying music. Fewer customers. Labels should be doing everything they can to nurture every single fan who’s willing to fork over cash for digital files. This is a classic example of the major labels shooting themselves in the foot.
When sales decrease 20-30% every two years, how long can this industry even hope to stay afloat?
Previously: iTunes Shocker: Raising Price Decreases Sales; iTunes: Why Pay More!
Via Lefsetz.
The labels always saw iTunes as a revenue generator anyway, so raising the prices offsets the lost revenue caused by piracy. At best, it’s a quick fix before a new business model is put into place. The real loser here is Apple, if anyone.
Apple sells just as many iPods and iPhones whether people legally purchase music or not.
Of course the labels saw iTunes as a revenue generator, that’s the point of retail regardless of online or offline. The point of the article is that going for short-term revenue gains at the cost of decreased customers is a losing game. Eventually you hit a point where the size of the audience is too small to sustain the cost of the product (see: CDs in the 80s and 90s).
When Steve Jobs pitched iTunes to the majors he had one compelling argument for why it would be successful against free file sharing networks: Most people WILL pay for digital music if you make it easy to do, safe (as in no viruses, spyware, etc.) and affordable. The price point of 99 cents was the threshold and that’s been proven out by FEWER people paying MORE money for digital downloads. Steve Jobs got it, the majors still don’t.