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On one day in early January, Amazon's MP3 store sold Elvis Costello's My Aim Is True and Miles Davis' In a Silent Way for $1.98, Walmart.com sold Carrie Underwood's Some Hearts for $7, and the iTunes Store had TV on the Radio's Dear Science for $7.99. These steep discounts are part of a new wave of tinkering with the price of digital music to lure customers into online stores and boost album sales. "Our MP3 business is still relatively young, and one of the great benefits of the digital business versus the CD business is that we can experiment with price changes for an hour, a day or however long we like, with no impact on inventory," says Bill Carr, vice president of digital media for Amazon.
The new low prices reflect a long-running debate within the music business. Many artist managers believe that since millions of fans continue to download songs illegally, for free, $9.99 for a full album is far too expensive. But executives at major record labels generally resist dropping online prices, arguing that they can't absorb the significantly lower profit margins and don't want to devalue music.
That mentality is starting to change. Warner Music recently sold Paramore's Riot! for $5 via the Amazon MP3 store, possibly because the emo-pop band has a "360-degree contract" in which the label shares profits from concert tickets and merchandise in addition to CDs. In other cases, label sources say Amazon and other stores are willing to reduce their profits in order to attract new customers. (Generally, an online retailer buys a new hit album from a label for a wholesale price of about $7 per album.) "It's all about customer acquisition," says Jack Isquith, senior vice president of digital music for Warner Bros. Records. "It seems like competitive album pricing does work."
For years, label executives aggressively lobbied Apple to raise prices above 99 cents for certain songs, and on January 6th, Apple officials announced iTunes would begin selling some singles for $1.29. The store will also sell older catalog titles for 69 cents apiece. "The labels are going to set the prices," says Tom Corson, general manager of the RCA Records Group. "We now have to do a massive review of our content."
Digital-album prices are less straightforward: In recent weeks, Amazon sold the Slumdog Millionaire soundtrack and Pink Floyd's Dark Side of the Moon for $5, while iTunes recently put some of 2008's best albums, such as Fleet Foxes' Fleet Foxes and MGMT's Oracular Spectacular, on sale for $7.99.
But even some top managers worry about the plunging value of recorded music. "It's a concern," says Simon Renshaw, manager of the Dixie Chicks, whose 1999 album, Fly, was recently on sale at Amazon for $5.99. "You have to wonder when you see a Miles Davis classic at $1.98. That number is insanely low."
That said, many managers are pushing labels to slash prices even more. "I'd love to sell our records for $4.99 — it's just getting the label to agree," says Fall Out Boy manager Bob McLynn, who worked with Atlantic to sell the latest albums by his clients Gym Class Heroes, Panic at the Disco and others on iTunes for $7.99 through the holidays. "The labels want to raise prices. It blows my mind."
[From Issue 1071 — February 5, 2009]
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