The price of music on CDs is going down -- way down. As in, dying. Case in point: The Virgin Megastore across the street from the Apple store in San Francisco is closing for good. You can get some nice going-out-of-business prices there.
And make no mistake, it's Apple, and its iTunes online store, that is nailing the coffin shut on CDs. So what is Apple doing now that they've won? Raising prices, of course.
When the iTunes online music store launched in 2003, all tracks were 99 cents. They stayed that price for years. Recently, though, Apple has introduced tiered pricing. Hot, new songs are $1.29. Your standard tracks are $0.99. And the more obscure tracks are $0.69. What's this mean in the real world? Just under half of the top 100 songs in the iTunes store are $1.29, the rest are $0.99. Prices are up, mathematically speaking, about 15% for the top tracks.
The song publishers (the record labels) select how they want to price their songs, but they can't charge anything but one of the three approved prices. You won't find $0.29 songs nor any for $2.99. (Albums vary in price, however.)
Amazon, which also until recently charged $0.99 for each song, also now has varying song prices at the same their tiers as Apple. Walmart.com does as well, except their tiers are $0.05 lower - $0.64, $0.94, and $1.24. Such a deal.
In return for paying more money for the hot tracks, all consumers at all the online stores now get their music in formats that are free and clear to move around -- that is, not copy-protected. Or as they say, un-DRMed (DRM stands for Digital Rights Management). This means that if you buy a track for your iPod, you'll be able to copy it on to a friend's, without getting tripped up by technology.
As DRM was giving many users a lot of headaches when they upgraded equipment or wanted to move their music from one device to another legally, the universal evaporation of this technology is extremely welcome (and overdue). We're paying more for music, but we can now do more with it.
Will music prices continue to rise? It's possible, but they probably won't. Thanks to the death of DRM, all tracks can now easily be copied, or to put it more accurately, stolen. Make music prices unreasonably high, and even honest people won't pay, and those who really want tracks will likely go outside the legal market to get them. Keep prices fair, and enough people will pay for them.
That is the equilibrium we are settling into now. The music labels know full well that some percentage of their content is going to be distributed outside of their licensing system, depriving them of revenue. However, wide distribution of music exposes more people to it, some of whom will buy it.
It's a balance. If the labels price music too low and they don't make enough money. If they make the music too expensive or too hard to move around, people get it anyway but without buying it. Price things just right and you have enough sales, enough free distribution, and enough satisfied consumers that you can keep the music economy moving along.
By Rafe Needleman