, ,

Apple is changing its fixed music pricing strategy to feature three-tiered pricing. The company, the world’s largest music retailer, has sold 6 billion songs since its iTunes store opened in 2003. These pricing changes, the first shift in the company’s history, propose expanded rights to the music that consumers purchase and are designed to increase music downloading activity, which has been on the decline.

The three-tiered structure will charge 69 cents, 99 cents, or $1.29 per song, rather than 99 cents for all songs. Apple’s pricing move may reflect changes in the online music industry, in which growth in paid downloads decreased in 2008 from 45 to 27 percent. In addition, Amazon.com sells songs for less than iTunes and does not require copy protection.

Apple’s new pricing strategy eliminates its copy protection. The copy protection in place currently makes it difficult for users to download iTunes songs to competing products, such as SanDisk players or Zune. But more download competitors means that Apple cannot limit the compatibility of its music with other products.

In the new pricing plan, most songs will be 69 cents, but the most sought after songs will be $1.29. Users who want to upgrade their existing playlist to copy protection–free versions can do so for 30 cents per song. Apple essentially is making those songs that people would download, no matter what, more expensive, but charging less for those songs that customers might download or not. It thus can increase its sales per customer.

Finally, along with the pricing change, Apple is increasing the availability of the iTunes store. For example, iPhone 3G phones can download songs from the iTunes store on a wireless network, without being connected to a computer.

Discussion Questions:

  1. Why is Apple changing its pricing?
  2. What other services or changes is Apple making to the iTunes product?

Ethan Smith and Yukari Iwatani Kane, “Apples Changes Tune on Music Pricing,” The Wall Street Journal, January 7, 2009.