iTunes Next Big Thing: variable pricing

Well, Apple’s iTunes has finally given in to variable pricing pressure – a little bit. iTunes’s new “Next Big Thing” section lists albums for $5.99 and $6.99, instead of the normal $9.99. While it’s not the per-song variability the record labels have been pushing for, the door has cracked open.

The labels would love to sell new, hot songs for more than iTunes’s standard 99 cents, since their price elasticity is probably pretty low – people will buy them regardless of how much they cost. And the labels want to sell older, less popular songs for under 99 cents, since they hope more people will buy if they’re cheaper. So far Apple has resisted. Their only concession has been to price the EMI tracks without digital rights management (DRM) at $1.29, since they’re both transferrable without DRM restrictions and encoded at higher quality.

But now Apple has set up the “Next Big Thing”, and it’s producing results for the featured albums. Sara Bareilles’s Little Voice hit the number one spot for albums with about 14,000 downloads. The Wall Street Journal compares that to “albums from Paul McCartney and the White Stripes [which] sold around 16,000 digital copies during their first week of release earlier this year,” and mentions, “Atlanta rapper Unk’s 9-month-old album, which had been down 1% the week before the promotion, enjoyed a 152% spike in digital sales.”

Apple is coy about who picks the abums to showcase, saying, “Just who decides what the Next Big Thing is? Is there a committee? A grand jury of elite tastemakers who have the power and influence to push something into the arms (and ears) of the pop marketplace? Honestly, there’s nothing of the sort (we hope). … Well, we’re halfway through the year and iTunes has a fine selection of artists who we think have the true grit (or pure luck) it takes to beome the next big thing.”

Absent any actual information, I have to assume this is like bookstore coop, as described in an AIGA Journal of Design article: “You may have thought the books on the front tables at B&N were hand-selected by a local book-loving manager, or that the titles on view are “bestsellers” or the books being talked about in the press. In actuality, the publisher has paid the store for this placement in a deal known as “co-operative advertising” or cost sharing between the retailer and supplier. Those books on the table often do end up being bestsellers, in part because of this positioning in the store.”

So have the labels paid for coop? If they have, so far they’re probably getting their money’s worth. And will this satisfy them, or will they keep pushing for per-song pricing? Universal is currently renegotiating its contract with Apple and trying not to sign anything long-term, and the labels have been more insistent about variable pricing each year iTunes has stuck with the flat 99 cents price. Will Apple be able to keep all songs in lock-step? Or what interesting concessions can they wring from labels for letting them break the ranks?

ETA: It has been pointed out to me that album prices have historically been somewhat flexible (the White Stripes album is $10.99, for instance, and T.I. versus T.I.P. is $12.99), and iTunes has run sales that look like this before, with a special page of “these things are cheap”. This seems to be the first ongoing discount program, though.

About Jennifer Berk

I'm an analytics and data leader with a marketing and product mindset. I like online newspapers, science fiction and fantasy, and ugly fish.
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