Good news, music fans! The tracks that you're downloading from Apple's (Nasdaq: AAPL ) iTunes downloads are about to get 30% better.
Well, at least they're being priced as if they are 30% better -- a problematic value proposition in this iffy economy.
This morning's Los Angeles Times reports that Apple is allowing record labels to raise the $0.99 price on iTunes' hottest tracks and several classic singles. Come April 7, those songs will be priced at $1.29 apiece. Moving away from the single price that has been set in stone since the store's launch in 2003, Apple will now let labels offer songs for $0.69, $0.99, and $1.29.
These pricing tiers were introduced back in January, but now that the launch is practically official, is it too late for cold feet?
Who's the winner here?
Record labels such as Warner Music Group (NYSE: WMG ) and EMI may be ecstatic about the ability to squeeze more out of their strongest sellers, but they will eventually regret the move. Last I heard, rampant music piracy wasn't getting 30% more expensive in two weeks.
Variable pricing also cuts both ways. Just as iPhone and iPod touch owners hitting Apple's App Store tend to gravitate towards the free software offerings, the new pricing tiers will likely lead music fans to scour the $0.69 bargain bin, instead of giving in to the higher prices. Cocky labels will be in for a rude awakening if they believe their product isn't price-sensitive.
Did Apple spoil music listeners by sticking to the $0.99 price point for too long? It's certainly possible. Pricing digital CDs at $9.99 a pop also probably helped turn music fans from consumers of albums into consumers of tracks. Don't blame Apple entirely, though, since ringtone sales also got music fans thinking piecemeal.
The key here is figuring out whether rivals will follow suit. Apple is the biggest game in town, but certainly not the only one. As labels ease their grip on the digital rights management features that shackled tracks, penny-pinching music fans have an ever-growing number of digital stores in which to shop around. It certainly isn't in Apple's best interests to lose iTunes loyalists to rivals such as Amazon.com (Nasdaq: AMZN ) or Best Buy's (NYSE: BBY ) Napster.
Higher prices may also help Internet radio, since companies like CBS (NYSE: CBS ) , Time Warner (NYSE: TWX ) , and Sirius XM Radio (Nasdaq: SIRI ) have captive audiences when they provide direct-purchase links to the songs they're streaming on the Web. Still, it seems as if there is more to be lost than gained in this risky move.
If you thought labels had a bad reputation with music fans before, just imagine how listeners will feel now. A 30% price hike won't be music to anyone's ears -- except perhaps those of the labels themselves. And those notes may grow stale and sour over time.
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