Downloading music to get more expensive?

[Katsuya]

All five of the major music companies are discussing ways to boost the price of single-song downloads on hot releases - to anywhere from $1.25 to as much as $2.49. or more.

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Source: Wall Street Journal

To see the future of online music prices, look no further than "Fly or Die," the new album by rock-meets-hip-hop trio N.E.R.D.

For months, digital-music services have been touting albums for $9.99 to entice more people to buy online. But Apple Computer Inc.'s iTunes Music Store has been charging $16.99 for "Fly or Die," while Roxio Inc.'s Napster service sells the 12-song collection for $13.99. Both prices are higher than the $13.49 that Amazon.com charges for the CD itself. The same pricing shifts are showing up on albums by a growing slate of artists, from Shakira to Bob Dylan.

Unburdened by manufacturing and distribution costs, online music was supposed to usher in a new era of inexpensive, easy-to-access music for consumers. In many cases, buying music online is still cheaper than shopping for CDs at retail outlets. But just a year after iTunes debuted with its 99-cent songs and mostly $9.99 albums, that affordable and straightforward pricing structure is already under pressure.

All five of the major music companies are discussing ways to boost the price of single-song downloads on hot releases - to anywhere from $1.25 to as much as $2.49. It isn't clear how or when such a price hike would take place, and it could still be months away. Sales of such singles - prices have remained at 99 cents - still account for the majority of online music sales.

The industry is also mulling other ways to charge more for online singles. One option under consideration is bundling hit songs with less-desirable tracks. Another possibility is charging more for a single track if it is available online before the broader release of the entire album from which it is taken. There is also talk of lowering the price on some individual tracks from older albums.

Several record-company executives acknowledged that pricing changes are being discussed at all five major companies.

The new pricing developments come as digital-music sales are growing steadily. Some 25 million digital tracks were sold in the first three months of this year, versus 19.2 million for all of the second half of last year, according to Nielsen SoundScan.

That growth is why some in the industry are uncomfortable with the talk of price increases. Most music-company executives believe that the download market is still in a critical early-growth stage, which could be disrupted by raising prices. "For us right now the issue is not, 'Do we make another $300,000 by raising the price five cents?"' says a music company executive. "It's making sure the market grows."

Revenues in the music industry have been dragging in recent years, in part because of the rise of illegal downloading services. Raising digital-music prices could spur additional illicit downloading. Weaning people off those illegal services by giving them an alternative that they consider viable is critical to the industry's future profitability.

N.E.R.D's "Fly or Die" is far from the only album that now costs significantly more to download from iTunes than to buy on CD. And many high-profile albums from two of the big five music companies, Sony Corp.'s Sony Music Entertainment and EMI Group PLC, are now priced on iTunes and its competitors well above the $9.99 norm. Sony artist Pete Yorn's "Musicforthemorningafter," for example, costs $13.99 on iTunes and $10.88 on average in retail stores, according to the NPD Group. Albums by EMI artists from Kylie Minogue to Blur also cost more in digital than physical form. (EMI also distributes N.E.R.D.)

The reason this disparity is so pronounced at EMI and Sony is that both companies routinely set wholesale prices for online albums higher than their competitors, according to people familiar with the matter.

A much smaller number of titles from the other major music labels also cost more than $9.99 on iTunes. A handful of albums from Bertelsmann AG's BMG, Warner Music Group, and Vivendi Universal SA's Universal Music Group also cost more online than they do as CDs. But these tend to be double discs such as OutKast's "Speakerboxxx/The Love Below," which incur higher costs in certain kinds of royalties when sold online than as traditional CDs.

"There's a lot of experimentation in the industry," says Peter Csathy, president and chief operating officer of Musicmatch Inc., which sells digital music.

The music companies are reluctant to talk openly about their wholesale-pricing strategies, but they are quick to blame the retailers for higher prices. A spokeswoman for EMI, for instance, stresses that the retailers, not record companies, ultimately set the prices consumers pay.

However, the digital-music services say they base their retail prices directly on the wholesale prices the music companies charge. "Our pricing comes when the fees come in from the labels," said Musicmatch's Mr. Csathy.

ITunes, the market leader among downloading services, and its competitors offer music at two distinct price points: Single tracks cost 99 cents. A full-album has generally cost $9.99, regardless of how many songs are on it.

Napster was until recently the lone holdout among the major online services on full album prices, charging $9.95 for numerous titles that cost between $12.87 and $16.99 on iTunes. But two weeks ago, it relented and created a higher tier of album prices, set at $13.99.

Separately, Walmart.com, the online arm of Wal-Mart Stores Inc., recently rolled out a slightly cheaper 88-cents-per-track price. Many observers, however, argue that any advantage conferred by the 11-cent difference will be offset by a user interface that early reviews have called less friendly than those of other services. Executives at competing services also contend that research shows that consumers don't care much about price differences within the band of about 75 cents and 99 cents.

The issue of online music prices raises philosophical debates for music executives. Some executives, for example, believe they should be charging a premium for the online versions of older tracks because consumers may be willing to pay more for harder-to-find material.

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[N1ghtw0lf]

all they are doing is pissing people off more...people figured downloading music at $0.99 a pop was cheaper than buying a whole cd at best buy, all they did was give them all the more reason to start downloading them for free again...

[RZetlin]

The music industry is shooting themselves in the foot.

Their own greed is getting in the way of the possible future.

They are probably going to use this as an excuse as to why digital music doesn't work.

[Ryos]

Paying more money for a lower quality song than on a CD makes a lot of sense. A lot of people (myself included) already thought the download price for most of the download stores was way too high for what you got - why would increasing the price be even better?

[bcrew1375]

Originally Posted by Ryos

Paying more money for a lower quality song than on a CD makes a lot of sense.

Tell me that is a typo or you're being sarcastic .

I fully agree with RZetlin here. The music industry is just getting dumber and dumber.

[Ryos]

Sarcasm factor on high that first sentence, yeah.

[Solid_Snake]

No wonder music is going to be more expensive how 'bout the economy??

[Razor Blade]

Yea, the Canadian prime minister said that the music was a major part of Canada's economy at the Junos. Well um I don't think we should be relying on something that can be popular one week and not the next.

Canada is retarded for that. (yes I am canadian)

Anyways there is no need for this proce boost. I'm sure like everything else it will drop again. It's just like gas, the way I look at it. Sometimes it's high and sometimes you get a deal. With Wal Mart going to sell music online as well they will have good competition and force others to drop prices.

Yes everyone knows the RIAA is retarded so do whatever it takes to stop em. I personally don't support them. And won't buy CD's or online music because of it. They can bring their greedy asses somewhere else.

[wise_evian]

I understand why they would boost prices. Think of it like ordering pizza..of course its more expensive to order it then to just goto your local store and buy one, but its the lazyness of it all. Besides its only geeks like us that debate this over and over again..alot of people are going to pay the 1.25+ because a. they dont know any better or b. just dont feel like going to the store at 4am. I still think its wrong to boost them but like i said we are a small crowd :/