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Price Is Key to Digital Music Growth

A dollar per track is the sweet spot for online, mobile services.

Paul Verna - Senior Analyst

Two new digital developments promise relief for the music industry, which has been fighting declining CD sales since the turn of the millennium.

For one, EMI announced that it will eliminate restrictive digital rights management (DRM) technology from the bulk of its catalog (for a price).

The second is Sprint-Nextel's announcement of a 99-cent-per-track over-the-air (OTA) mobile music service in the US.

Consumers favor keeping prices at the dollar-per-track level that Apple established when it rolled out its iTunes Music Store four years ago. When Ipsos Public Affairs asked what consumers thought of the price, more than 70% of respondents rated it as either "fair" or a "bargain." Only 19% felt that 99 cents was "too expensive."

Yankee Group has noted a substantial increase in the amount of legal online music downloading activity from 2003 to 2005, along with an even bigger drop in the use of illegal P2P networks for downloading music.

These findings suggest an inverse relationship between consumers' perception of price fairness and their propensity to resort to illegal means to acquire music. The question is whether a $1.29 price will stick, or if EMI and other labels that go DRM-free will need to bring their prices closer to the 99-cent sweet spot in order to see a spike in business.

The Sprint Music Store's 99-cent-per-track offering is a challenge to other OTA services, which have been priced in the $2.00-to-$2.50-per-track range.

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