January 29, 2006

In Search of Price Dispersion in the Music Download Market

Apple iTunes set the standard of 99 cents per song for downloaded music files. While others have matched their price or offered slightly different prices (Wal-mart at 88 cents) the digital music market has shown remarkable price consistency. However, the recording labels are pressing for price dispersion which would allow them to charge more for popular songs and less for new releases to create initial demand.
Ideally, they would like to see low prices initially for a given song and then raise price to match popularity. So far, Apple has resisted price dispersion to maintain simplicity for the user. And thanks to their market dominance they have been able to hold the line at 99 cents. How long this will continue is anyone's guess. However, we can expect continued pressure from both labels and other music download services to force Apple deviate from that price. At this time it doesn't appear that anyone can force Apple to do anything in this market.

Who wins and who loses at 99 cents? Obviously one winner is Apple who continues to sell music files at minimal profit levels in order to continue to sell their hot iPods products. Undiscovered artists lose as the 99 cents level may be too much for many people to try out unknown music from unknown artists. Finally, since dispersion would likely result in higher prices for high demand songs and lower prices for older, less "in" songs, the less popular songs are essentially subsidizing the sale of current hits. Therefore, winners are the fans of popular music and losers are old folks who might wish to buy classic rock cuts from the 70's. This is just another example of how potential users of the Internet from the older generation are not being adequately served online and therefore have less reason to go online.

Posted by at January 29, 2006 2:08 PM