by : Business, December 2016

The Tale of Apple’s 69¢ Songs

The Tale of Apple’s 69¢ Songs

iTunes has recently given independent artists and others the choice of selling singles for 69¢. Prior to this, and since variable pricing was introduced close to 2009, the labels, not the artists, would tell Apple at which price tier they preferred to sell recorded product – either at 69¢, 99¢, or $1.29. Prior to 2009, all downloads at iTunes sold for 99¢, a policy that Apple chief Steve Jobs enforced to drive purchases of the iPod.

Variable pricing maximized label revenue because iTunes was the port of call for most purchases and megastar releases could be priced higher than lower selling recordings. A price elasticity of demand analysis shows that moving a song to the higher price tier of $1.29 would work for the labels, earning them more revenue, as long as the purchases of that download, because of the higher price, did not fall below 23%. Conversely, a song discounted to 69¢ from 99¢ would have to increase the number of downloads by over 44% to justify the discount.1 That is why, prior to this policy, there were so few takers of the 69¢ option. Labels, in short, chose to price most of their music at 99¢ or $1.29.

Apple’s new policy creates a “Great 69¢ Song” list, where the recording stays, typically, for two weeks. Once a single is taken off the list it returns to its original price. As shown above, in most instances the surge in demand that is required to justify a 69¢ discount is unlikely to materialize, so the reason for Apple granting the discount may not be obvious –- either for the independent artists that exercise this choice or for Apple, which makes approximately 30 cents to the dollar on every download.

In the end, whether deliberately intended or not, we argue that what may be at stake is a pay-for play offer for better chart positioning.

Charts are effective as indicators of consumer tastes as long as the only differentiating factor between two pieces of recorded music is the music itself. If a song sells at a much lower value than another, it is difficult to say if the chart is indicating a preference for a good song or a bargain. A good example is Shawn Mendes’ single “Treat You Better”, released on June 3rd, 2016. For weeks it languished, reaching No. 14 on the Billboard Hot 100. Then it became part of the “Great 69¢ Song” list, which meant it went straight to the iTunes home page for promotion and exposure. The song then peaked at No. 8 on the Hot 100, and, apparently, well justified its discount.2 This, of course, may not be the case with every song, and “Treat You Better” had some traction behind it before the discount.

Moreover, promotion in the “Great 69¢ Song” does not come cheap. Billboard itself reports that “the promotion can cost between $2,000-$10,000 a week.”3 Obviously, this is a sum that is not easily tendered by smaller artists, who could in any case lose money with the discount. Therefore, the inference must be that buying into the 69¢ play is a transaction meant to influence the music charts.

The 69¢ discount is not new and in its latest iteration reflects the increasing role of Internet Service Providers (ISPs) in the fortunes of music. Apple, for instance, has decided on selling price points for music for a long time, first objecting to the labels’ request for variable pricing when iTunes was born in 2002, and then agreeing at the end of the decade to three price points for downloads

The recording industry has always wished for more flexible pricing, and it is not clear that the three-tier system completely satisfied it. Before iTunes the trappings of the music marketplace were such that megastar releases were sold in every record store and perfect competition at retail prevented hits from selling more expensively. This was contrary to demand theory that suggested that sellers maximized revenue by raising prices in products that had a firm demand. Moreover, deeper catalog that didn’t sell as well took retail space and was sold more expensively in the 1990s than hits, again contradicting a long-standing economic principle that suggested that sellers who sold product with a soft demand should lower prices to maximize earnings. The labels, in short, had little power to control the price of the product they sold in the 1990s even without the ISPs. When Apple took over the distribution of recorded music, the potential for variable pricing became very real again because Apple iTunes became the single point of sale, and record stores were no longer in competition for the ubiquitous hits.4

Therefore, the best pricing system for the industry, in an era that has largely superseded the challenges of free file sharing music, is the most flexible. In fact, it could be argued that the current 69¢ discount really does not add much to the marketplace. It has been tried before, and in its latest version, as was suggested above, seems to discourage independent music makers from applying to Apple. A smaller discount would have been in everyone’s best interest.

Further, for many that are preoccupied with the devaluation of music, including top-level artists, this latest policy by Apple appears to do little good. If there is an element of artist discovery and exposure in the new measure, it does not seem to come free and the medium for this new pay-for-play is really not where listeners are flocking.

 

By Peter Alhadeff and Laura Green

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Endnotes:

  1. Alhadeff, Peter, “PED and Apple iTunes”, Berklee class handout, Boston, Fall 2016.
  2. Christman, Ed. “ITunes’ 69-Cent Discount Songs Drive Chart Positions and Radio Plays — For a Price.” Billboard. N.p., 08 Sept. 2016. Web. 26 Sept. 2016.
  3. Ibid.
  4. Alhadeff, Peter, “The Value of Music and the Trappings of the Marketplace, 1990-2005”, MEIEA Journal (2008), pp. 13-27.
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