Inside Apple's New iTunes Pricing

Apple yesterday pulled off another masterful move to get consenting adults to pay for music that they otherwise could own for free.

And, they made the record labels think they finally won a round by instituting variable pricing on iTunes.

As I've often said, be careful what you wish for.

The new DRM-free music library allows you to buy music for 69 cents, 99 cents or the low, low price of $1.29 for some cuts.

Lots of luck.

You're not going to find a lot of 69 cent songs -- it's just a slight of hand for the $1.29 cent downloads. In reality, most everything else remains as it was -- 99 cents.

Suckers like me have already authorized the upgrade to DRM on iTunes. Then, again -- I buy music through iTunes -- for convenience.

But what may be lost here is that iTunes -- America's record store -- is simply helping these poor victims at the labels arrive at Apple's next play.

What's that?

It's hard to know for sure with Apple, but I hope it is bundling music for a monthly fee -- except, instead of the labels dictating that monthly fee -- Apple will do it.

Check with any young, rabid music fan and see how much they care about DRM.

They don't.

They have their own DRM -- and it's called free.

For the rest of us -- we just want to get our iPods and iPhones loaded with Def Leppard and don't care about the few pennies it may cost to do so. (Hey, what's up with no Pyromania at any price on iTunes?)

The significance of Apple's new variable pricing scheme is that it helps to drive the overall cost of music down closer to zero. Zero is the number you start with when you consider how many get music through bit torrent sites.

And the labels fought for this?

Here's what I think is going to happen.

The labels may control the music flow but Apple is the gatekeeper.

And iTunes in and of itself as a source for simple music downloads will become passe.

The future is Apple iPhone Apps (applications that may cost money or may be offered for free).

Apple owns that franchise, too. Blackberry has belatedly entered the field with its Storm, but Apple remains in the driver's seat.

So, think about it.

Far fewer people are buying CDs.

Not enough people download legal music to make it a business.

But phone lovers are tripping over themselves to gladly pay for apps.

Yesterday, I spent 99 cents on the iTunes iPhone store to buy a cool new game called Flight Control. Flight Control allows me to be an air traffic controller and use my finger to bring airplanes in to safely land at LAX. That's right -- LAX. I can leave the music or use my own music from the phone. It's a ton of fun -- keep my 99 cents. I would have paid more!

No young person is addicted to paying for music -- can we agree on that?

But Apple apps -- well, that's another thing.

I've been saying all along that the music business is going to have to change from the "press 'em and sell 'em" model to something that cooperates with the inevitable.

I've begged the labels to charge the same for a song as the cell phone carriers do for text messages -- and eventually they'll sell packages once the addiction overwhelms the consumer.

Currently, the addiction to steal is not offset by a 5 cent charge that makes piracy not worth it.

Now, you can almost read Steve Jobs' mind.

The move is on.

For the willing, three prices for all singles on iTunes, but its a sham because the operative price is 99 cents.

Watch what Jobs does with Apple apps. You'll see 99 cents per app and you'll see smart record labels and better yet, their acts -- jumping in.

An app doesn't have to be permanent. Barack Obama had a pretty awesome fund raising app for iPhones and after he was elected he closed it down and moved on to other digital ideas.

An app that lasts only a week but is worthwhile is worth money.

So, keep your eyes on the man who understands the next generation -- Steve Jobs.

He understands that they are the change makers.

What they pioneer, the other generations tend to adopt (downloading, iTunes, streaming audio and video -- even Facebook and Twitter).

He understands that the price of an iPhone is $199 plus a whole lot more to Apple and AT&T for the two-year contract term. You don't see that price going away or going down.

Jobs also knows that the price of music is nothing -- zero. And he's been making a cottage industry out of selling music downloads to people who value convenience at a price point he full well knows. Their threshold is 99 cents in spite of the variable pricing he is allowing the labels to charge.

All the higher price is going to do is promote piracy. Period.

Now, the computer company that stuck it to the record industry is getting ready for its most ambitious move yet -- music as apps.

Guess who controls the pricing?

And the delivery?

And sells the hardware?

And the two-year contracts for that hardware?

I have a lot of admiration for Trent Reznor of Nine Inch Nails for his many innovative ideas. He hasn't discovered the new record label model yet, but at least he's trying innovative things,. If you have the time, here is seven minutes well spent to see what I call a primitive look at the future of music on the iPhone.

Remember I said -- primitive - because it's going to be even more exciting than this.

It should reassure artists, bands and managers -- that selling CDs through record labels may be dead, but getting people to pay for music-related content is going to be a huge business and Apple took another step yesterday in showing the way.

For those of you who would prefer to get Jerry's daily posts by email for free, please click here. IMPORTANT: First you must check your mail or spam filter to verify your subscription immediately after signing up before daily service can begin.
Thanks for forwarding my pieces to your friends and linking to your websites and boards.