RSSSimple economics: Week one of the iTunes price change
By Tim Conneally | Published April 16, 2009, 4:39 PM
Billboard magazine today said that sales of newly-priced iTunes tracks are trending downward as a result of last week's price increase. The publication's figures pertain to tracks that were formerly 99¢ and are now $1.29. A price increase of roughly 30% correlated to a 12.5% drop in sales. Meanwhile, tracks that were unchanged in price actually sold 10% more than the previous week, and sales were up 3% overall.
It is a path that labels do not want sales to follow. Before the changes went into effect, a major label executive who wished to remain anonymous, told Reuters, "If we can gain traction with $1.29 that will be good for greater margin."
So there's no traction yet. But it's only been a week, and all these stats show is that MP3s too are subject to the laws of the demand curve. It's one of the most simple concepts in economics: As the price of goods increases, the demand decreases. Adjustments take place until the market clearing price is reached, that is, the point at which supply and demand are equal.
But the prices didn't only increase, and Billboard failed to focus on tracks that actually went down in price to 69¢, shrinking the margin. 69¢ tracks were forecast to sell at a rate ten times greater than $1.29 tracks, also quite directly following the demand curve.
I hope $1.29 fails.
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|"But the prices didn't only increase, and Billboard failed to focus on tracks that actually went down in price to 69¢, shrinking the margin. 69¢ tracks were forecast to sell at a rate ten times greater than $1.29 tracks, also quite directly following the demand curve."
Was the writer going to finish his thought? One would think you have more to say.
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|What I've read elsewhere is that the $0.69 tracks are difficult to find, as well as few and far between them.
I've noticed that stores are selling mp3 discs now, so I can only assume that they want to get more profit everywhere and that most people aren't going to be buying lower quality for more money. You have to wonder if sales of physical CDs have increased in this period, which could have also been the goal of record companies. Getting rid of Apple helps them control their profit and their destiny.
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|Here's how the math works for me, selling, say 100 songs in the base case:
Base: 100* $0.99 = $99 of revenue
New: 87.5 * 1.29 = $112.9 of revenue
A smart company would price at $1.29 all day long.
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|Jesus, this article came out a while ago and it showed that tracks would have to fall considerably (much more than they have) to net the studios less money. FAIL!
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|Gotta love the greedy record labels and their whinging over sales.
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|And this surprises who exactly?
In this down economy, people are going to flock to the cheapest price of nearly everything; gas, food, entertainment, and yes, online sales of music. With stores and services like Rhapsody (which is $14.95/month for their Rhapsody To Go plan) and also Amazon (which I believe is between $.89 and $.99 per track), how is iTunes expecting their service to gain (and/or keep existing) users and turn profits while increasing prices? I can understand the draw of DRM free music, but while I am having to budget everything that I do down to the last cent just to make ends meet, spending $1.29 for the latest music right now (DRM free or not) just does not make any sense when I can get that same track, which will play on both my computer and my mp3 player for $.20~$.30 cheaper.
I believe this report will be just the first in a long series of sales drops due to the pricing increase.
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|no problem
When the sales go down it will be because of piracy..
but you knew that one don't you ? :)
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|I wasn't going to factor pirating of music into the equation only because it is already there. Just because the prices have gone up does not "neccesarily" mean that honest people are going to suddenly turn to dishonest ways.
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