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Monday
Mar302009

iTunes and AIG? Don’t think so.

Well…what is one to make of this?

ITunes’ announcement to increase prices on many hits singles and selected classic tracks to $1.29 while possibly lowering the price on some older tracks below the current $0.99 threshold has created quite the stir in some circles.

Firstly, let me be clear…in all my many years in the music (and record) industry, I never…repeat…never understood how uniform pricing made much sense. That Springsteen, 50 cent, Taylor Swift, Kelly Clarkson and U2 albums and singles sport the same pricing as the latest freshly-signed hopefuls, be they folk singers, new age harp players or country and western swingers really takes some effort to explain.

Other than making industry accounting easer to administer, there isn’t much one can think of to justify the traditional distortion in terms of pricing and costs which effectively places all music of all genres on the same level playing field. Take that T.I., Berlin Philharmonic, and you too Indigo Girls…that’s right…according to industry pricing practices, you’re all the same.

Anyway…be that as it may…here comes former EMI Music exec, Ted Cohen to offer his thoughts: “This will be a PR nightmare…It is for the music industry what the AIG bonuses are for the insurance companies”.

Really?

And here I am actually thinking of Amy Poehler and Seth Meyers bantering…. Really?

Let me get this straight.

No one in their right mind can actually discuss those AIG bonuses without being revolted by this sorry sordid mess that it is. Here was a clandestine effort to reward what appears to be gross incompetence, if not worse, using taxpayer money. Enough black eyes for anyone who chooses to get on line with this one.

But iTunes…let me see…last time we checked…this is a market, baby…here’s the price…buy, don’t buy, look elsewhere. It’s about free choice and last time I checked, there was no taxpayer money being pushed through downloads. No larceny, no horses leaving the barn…there’s exaggeration, there’s hyperbole and then there’s…this.

I have been in the room when Ted Cohen has spoken at industry panels and I have respect for him and for his up-to-now stated points of view.

So…here’s the deal…maybe he was misquoted, because to actually and knowingly compare a market decision to adjust prices (and through that decision to maybe even begin to acknowledge that music and artists are truly not created equal) with what went down at AIG, well…sorry, Ted… like you, like your ideas…but this one leaves me stunned.

_____________________________________

 

With more than 30 years experience in executive positions in the music industry, Shelley Stein-Sacks has a vast knowledge and in-depth understanding of the Canadian music industry. The recent author of The Canadian Independent Music Industry: An Examination of Distribution and Access and The Business of Music: A National Training Strategy for Business Skills in the Music Industry he has also developed and is delivering a full semester credit course on Marketing, Social Networks, and CyberMarketing for the Music Industry at the Schulich School of Music at McGill University.Through Brock + Chaloux Group Inc. Shelley provides strategic planning and counselling to various public and private sector clients on cultural and business issues as well as serving as a business coach to up and coming musicians.

 

 

Reader Comments (8)

So, I don't disagree with your point that music should be priced with a stronger relationship to brand, but I do take issue with calling the AIG bonus makers incompetent and dishonest. Here's the thing: they were offered CONTRACTS that paid out given certain levels of performance. If the players met the terms of their contract, why renege on the contract? Makes about as much sense as U2 albums selling for same price as mine!

Jeff

March 30 | Unregistered CommenterJeff Shattuck

While I agree entirely with you regarding the falseness of comparing iTunes new pricing to the AIG mess, I am curious about your objections to uniform pricing. Is it just a matter of pricing things based on how much they cost to produce, and therefore an album that cost more to make should be priced higher? Or are there other reasons why you object to uniform pricing?

March 31 | Unregistered CommenterCalysta Rose

I would venture a guess that Ted Cohen is referring to the perception of *greed* by the general populace.

iTunes will be charging $1.29 for the #1 pop single when a week ago it was charging $0.99 - why?

Is the #1 single this week 30 cents better than last week's? Is iTunes touting an improved delivery service that's worth an extra 30 cents?

If not, then certain portions of the public will assume iTunes is simply grabbing for more money.

It would be great to hear Mr. Stein-Sacks explain how he thinks consumers will respond to this increase - is the rationale something along the lines of pre-digital consumers were willing to pay more for an artist's new release than the artist's back catalogue?

March 31 | Unregistered CommenterNate Trier

I like how his bio is nearly as long as his post.

March 31 | Unregistered CommenterJinsai

AIG aside, I have always been baffled by uniform pricing given that a crappy sounding recording made in someone's closet will be priced at $9.95 and a full blown production with 60 piece orchestra recorded at Skywalker will be priced at $9.95. Sometimes, the closet recording are going to sell more and cost less.. that's a given. Over time, it led to no artist development or brand identity. Up till now, the whole game has been about selling units with a margin of pennies... not developing artists or titles or brands.

When I started my own label, Blue Coast Records, I stunned most of the traditional distributors with a retail price of $40 per disc. I turned down several label deals because they wouldn't honor that retail price. Sure, they wanted the music, it's a great brand. It would have given them another 2 weeks of reason to go to press for their own promotion. At best, I would have sold 1000 units, made a $1000 and not owned the title to do more. I'm happy to report that we've continued to sell our acoustic recordings, get paid in advance for bulk purchases, have a good margin for our International distributors to consider spending promotional money and we have gone on to become well respected for our brand.

We've opted not to sell on iTunes because we the pricing is too low. We want $4 per song and the ability to have high rez downloads. For the number of times our fans listen to our recordings, this is a value. We can give away the mp3 and it will increase our business. We are committed to quality products with value.

Cookie Marenco
www.bluecoastrecords.com

The quality/value of art or entertainment is inherently subjective.

If you are a big Radiohead fan, you might be willing to pay $40 for their new album. If you don't, you might expect someone to pay YOU $40 to listen to it.

Those in the industry have a vested interest in perpetuating the idea that "established stars" like those cited in the article (Springsteen, 50 cent, Taylor Swift, Kelly Clarkson and U2) above are somehow more deserving of money or their music is more valuable.

Personally, I'd rather listen to "the latest freshly-signed hopefuls" that the new albums by the crew listed above. Mr. Stein-Sacks also apparently feels that niche genres are some how inherently worth less than mainstream genres. Interesting approach.

There's no reason that all albums should be priced the same, but there's also no reason they should be priced any differently, either. Ultimately the record business needs to figure out how to get people interested in paying at all first, then work on figuring out how to get people to pay more.

April 1 | Unregistered CommenterJinsai

Hmmm, I might agree that Apple can most rapidly increase iTunes revenue by upping the price of, let's say U2, Rolling Stones and Spice Girl songs. I doubt that this has any relation to musical or artistic merit, though....

April 1 | Unregistered CommenterAndy Flinn

Thanks for your comments.

Calysta, here are some of my objections to uniform pricing.

Let’s start with the major labels and distributors charging the same price to the retailer for their product. As I said, aside from making some of their accounting processes easier, I am unable to think of a good reason to price ALL of your product at the same price. It’s not based on costs and it isn’t based on demand either…so what is it based on?

Labels do occasionally offer discounts either in terms of actual price discounts or free goods (which technically amounts to the same thing), but there is no direct tie-in between the discount and the price the retailer charges his customer. Often the retailer keeps the discount and his price decision is made based on many other considerations – the label paying for ad and marketing support or competition to name but two.

Even though brick and mortar retailers do vary pricing, online retailers like iTunes do not (until possibly now). That means that even if the label is willing to discount or to go in at a lower (or higher) price there is no incentive to do so because the retailer in this case is going to charge the same price anyway. Better yet, when the units are sold, the payments made to the label and artists will be based on the retailer’s pricing anyway.

Cookie, your experience is just one of many that I am aware of and proof that uniform pricing does not make sense.

And…the fact that in these cases neither the artist nor the creator can influence the price to be paid either by the retailer or by the consumer doesn’t sit well with me.

Consumers are in control and they will make purchase decision accordingly…uniform pricing in this context cannot and will not survive.

Nate – your comment about pre-digital consumers being willing to pay more for an artist’s new release than the artist’s back catalogue may be true but we’ll never know…because in reality at retail the music industry prices new releases far below back catalogue. This is true even after the release is only a few weeks or months old and it moves off a high traffic location and is relegated to the catalogue bins, if not the return shelf.

Actual numbers for new release vs. catalogue in brick and mortar heyday – new releases accounted for 75-80% of total dollar sales. Bear in mind though that the profit contribution on those sales was disproportionate. Consequently retailers made the decision to take profits on back catalogue which explains part of the pricing phenomenon.

While we’re at it…how many products do you know give away their new and in demand releases for close to break even? For most products other than music, pricing will be reduced over time – think of the gaming industry for example.

Consider this a major factor on why the former business value chain for the music industry ran into a wall.

How do I think consumers will react? I don’t think they’ll react at all…at least not those who are already part of the existing customer base. Maybe they’ll buy one download less for budget reasons, but in the same way that Starbuck’s can jack up that latte by $0.25 and still maintain the volume, so can iTunes.

And…people who aren’t paying $0.99 won’t be paying $1.29 either…

Jinsai…contrary to what you thought I feel, I am a strong believer in the worth of niche genres.

At both Sam the Record Man and Archambault we devoted tremendous effort and resources (including finding very talented and passionate people) to stocking and promoting other than mainstream genres. At Sam’s we were also the first to offer indie artists an opportunity to stock their recordings on a consignment basis in all of our major locations. Within a short period of time we had accounts open with thousands of indie artists. The decision to do so was not based on sales per square foot or margins but on the strong belief in the music and the artists and creators. Making the music available was the very least that we thought we could do. Incidentally, we let the artists decide on the pricing…and it did vary considerably.

Check out my iPod…I think you’d be surprised what’s on it!

Before we pile on iTunes though, let’s think about whether they have partners in this…yup…I think they do. Because they are paying the labels and artists based on a percentage of the sale, as the price goes up, so do the pay outs.

So, whose idea was this...iTunes (really, do you think they need THIS money) or the labels and distributors who are clutching at straws to live to see another day?

And lastly…even though this isn’t a blog about AIG…Jeff…I never said (nor do I believe) that the bonus makers are or were dishonest. I think the attempt to make the payouts without being transparent about it is unacceptable. I also personally feel strongly that there is a distinction between what you can legally do and what you should do (still legally of course). Just because you can do it, doesn’t mean you should.

If anyone thinks for one moment that the discussions to save the auto industry do not involve undoing legal obligations (like union contracts) with the signing off of all concerned parties…

So legally obliged, yes…but was there an attempt to do what was perhaps the more responsible and called for course of action?

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