Variable ITunes Pricing and the Future

In September 2005, Steve Jobs said this about the music companies:

"If they want to raise the prices, it means that they are getting greedy.... If the price goes up, they (consumers) will go back to piracy and everybody loses...."

This bit of hyperbole came care of negotiations between Apple and the major music labels. Those music labels wanted variable song pricing and Jobs was defending the iTunes Store's (US)99-cents-per-track pricing structure. His idea being that a reasonable one-price model was less confusing for consumers who might return to music piracy if they felt they were being gouged.

Yet last week, in a nearly oh-by-the-way manner, Apple's senior vice president of Worldwide Product Marketing, Phil Schiller, announced that the iTunes Store would soon offer music at three price points--69 cents, 99 cents, and $1.29.

On hearing that variable pricing was soon to be the law of the land you might question exactly when the freshness date expired on Jobs' thoughts regarding greed and piracy. The easy answer is "When AmazonMP3, with its generally lower prices, higher bit-rates, and lack of DRM proved to be a viable competitor to the iTunes Store." And certainly Amazon is part of the picture. People looking for bargains and flexibility have found Amazon's service to be a boon. Prices are attractive, the download client is intuitive and interacts nicely with iTunes, and because Amazon's tracks are in the MP3 format rather than AAC, they can be played on any digital music player made today or in the past several years.

But by relenting on variable pricing, Apple's bought more than the hope that it may drive a stake through Amazon's musical heart. It's also purchased a measure of cooperation from the music industry. And in a time when consumers' listening and buying habits are starting to change, it needs that cooperation. And by that I mean this:

Taking a swipe at music subscription services, Steve Jobs once famously said that people want to own their music rather than rent it. In a world where music enthusiasts are increasingly turning to services such as Pandora and Last.fm as well as adopting music streaming services delivered by set-top boxes, how accurate is that sentiment now and how true will it be in the next decade? My money's on "less and less so."

Take me, for example. Over the decades I've amassed a huge music collection--LPs as well as CDs. I like owning music. Yet now that a Sonos Multi-Room Music System loaded with a Rhapsody subscription music service has taken up residence in my home, I'd feel like a dope buying another CD and I strongly hesitate before clicking any iTunes Buy Song or Buy Album button. Unless I'm certain that the music I want will find its way to my iPhone or the car, I stay away.

As listeners are increasingly exposed to alternative ways to listen to music (Pandora and Last.fm being the current gateway), the attraction of ownership as the sole means for acquiring music is going to diminish. Add to this the fact that young people, who buy the bulk of music today, are the ones more open and exposed to non-ownership models, and you've got a real problem if you base your entire music strategy on customers punching a Buy button.

My guess is that Apple's aware of all this and is taking steps to move with the times (and, perhaps, ahead of them). In order to do that, it needs the cooperation of the music companies. If that cooperation, at worst, means variable pricing for iTunes shoppers, I count this as getting off lightly.

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