Tuesday, February 9, 2010

Expensive Music Sells Slowly As Predicted

Last year when the the major labels finally got their way with variable pricing on iTunes, industry pundits were pretty unanimous about the idea being a poor one. Why increase the price of hit songs in the middle of the worst economic times since the Great Depression? Why increase the price for the hits to $1.29 when the $.99 was proven to be a workable model?

But that's not how major record labels work, who seem to have knack for doing the exact opposite of what's best for them, their artists, and their customers.

While the first month after the price increase already showed a decrease in downloads, the labels were quick with their spin, saying that revenue actually increased despite the lower sales figure. This is ultimately only a short-term business model in that revenue is not the end-all in Music 3.0. The idea is to expose the music to as many people as possible. A larger audience means more catalog sales, more concert attendance and more merch sales, so anything that lowers the sales numbers is counter-productive.

Now comes a backhanded admission by Warner Music's CEO Edgar Bronfman that the strategy was misguided, suggesting in his comments on the company's recent earnings call that if nothing else, the timing of the increase was poor. This coming on the news that iTunes digital track sales in December grew only 5%, down from the usual double digit growth even in the midst of the Christmas buying season. Bronfman also confirmed that Warner's digital sales growth had slowed to only 8% over the previous year, which was up 20% over the year before that.

Are digital music sales flattening as the market becomes mature? Yes they are and it was bound to happen. But raising the prices have appeared to accelerate the trend. It's all downhill from here until digital music subscription reaches the tipping point.

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