Higher iTunes Prices Mean Lower Sales
In an earnings call today, Warner Music Group revealed that ever since the company raised prices on iTunes downloads, the number of song sales has decreased.
This may be a huge "duh" moment for all the people who opposed the price hike from $0.99 to $1.29 that music labels demanded last year. But there are significant lessons to be learned here that extend beyond the music industry.
Warner revealed that unit sales growth on Apple iTunes slowed as a result of the variable pricing plan, and not just for Warner. The entire industry saw growth slow from 10 and 11 percent in previous quarters to 5 percent in the most recent quarter. This is even more alarming because the holidays are usually a big time for all businesses, including music sales.
iTunes has been responsible for the bulk of digital music sales for labels, so a reduction in iTunes sales affects the bottom line. Digital revenue was only up 8 percent, when the previous year saw 20 percent growth in digital revenue.
Warner CEO Edgar Bronfman defended the pricing changes, saying that there was a "net positive" effect, although he later admitted that raising prices by 30 percent during a recession was not a good idea.
These results should be important to the book publishing industry because it is going through a similar pricing revolution. Interestingly, Steve Jobs, CEO of Apple, is also involved, but this time his position is reversed. Jobs was instrumental in pricing iTunes songs at $0.99 in the first place and opposed price increases. This time, the Apple iPad is allowing publishers to sell books at higher prices than the $9.99 industry standard set by the Amazon Kindle.
The music pricing results should be a warning for book publishers, who want a price increase of up to 50 percent (raising prices to $12.99 or $14.99) on Amazon Kindle e-books. The publishers could very well see a similar drop in sales, especially because raising prices from $10 to $15 is much harder for consumers to swallow than adding $0.30 to a song price.