iTunes to introduce variable pricing

Apple is dropping its anti-piracy protection on iTunes and the music biz if finally getting the variable pricing it has long desired.

The two changes, which have been debated by diskeries, consumers and the iPod maker for several years, were announced Tuesday at the MacWorld conference by Apple senior veep of production marketing Phil Schiller, who was filling in for the ailing Steve Jobs.

Starting immediately, 8 million songs on iTunes, from all four major labels as well as indies, will be sold without the anti-piracy protection known as DRM. By March, the remaining 2 million will drop the extra software that limits the number of times a purchased song can be transferred between devices and burned to a CD.

In April, EMI was the first label to drop DRM on iTunes, but others have resisted out of concern that sales would drop if there was nothing stopping consumers from making an infinite number of copies. Throughout the past year, Universal, Sony and Warner have started experimenting with DRM-free sales at other online music stores such as Amazon.com and Napster.

Those three have resisted offering such tracks on iTunes, which is believed to control 80% of the marketplace. The iTunes service has been a driving force in changing the music business from album-oriented to singles driven.

In the last eight years, sales of physical and digital albums have fallen to 428.4 million from 785.1 million. The singles business in 2000 was practically non-existent; in 2008, 1.07 billion digital downloads were sold, a rise of 27% over 2007.

When Apple unveiled its initial price of 99¢, it was the first time in the history of recorded music that a retail operation determined list price. There will now be three price tiers — 69¢, 99¢ and $1.29 — with labels determining which tracks are sold for how much. Amazon already works with variable pricing although most current hits are offered for either 79¢ or 89¢ apiece; most albums are $8.99.

One indie label head said the move is “a good step” that indicates iTunes is looking out for fans. The mystery, he said, is why they have also introduced a price higher than the current retail standard.

Most tracks are offered to iTunes at a wholesale price of about 69¢. Depending on the retail price, diskeries will receive wholesale prices of 49¢, 70¢ or 90¢ per track.

In a press release, Apple said “many more” tracks will cost 69¢ than $1.29. Consumers who previously bought songs with DRM on iTunes will be able to remove the anti-piracy limits on them for 30¢ each.

First sign that Apple might bend on uniform pricing came when it added movies in 2007 at three price points, followed by a rapprochement with NBC Universal last year in which it opened up pricing for TV shows as well.

To date, the service has used exclusive tracks and free downloads for promotions rather than reduced prices, which brick and mortar stores use to attract consumer traffic. On occasion, albums have been sold at discount prices as low as $5.99.

There have been no signs, however, that iTunes or other online videostores might start offering movies and TV shows without DRM. Studios and networks are still hopeful they won’t lose the battle against online video piracy the way they did music.

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