The iTunes music store is dropping the one-price model; Peter Kafka says that the tiers will be $0.79, $0.99 and $1.29 per track.
Given how singles-driven the pay-per-download business has turned out to be, I imagine that the difference between $1 and $1.29 is well within the price elasticity. If users are only choosing to pay for hit singles, why not do this? There are orders of magnitude more friction in a pay-per-download model than in an ad-sponsored model or in filesharing; the thirty cents is only a small increase in friction. People hate whipping out their credit card, but once they’ve gone that far thirty cents is not something that makes a difference.
The problem is that it’s a fixed limit on revenue growth. Even if it grows revenues by a straight 30%, that doesn’t compensate for the loss of CD revenues. Right now pay-per-download units are at about 1/5-1/4 of CD units. Price increases would grow revenues by 30% of that 1/4, which is not a lot of money, and once that growth was achieved it would stop.
Y’know what I’d like to see? Drastic decreases in the price of albums. Have singles prices high and album prices low. $1.30 for the single, $4 for an album. If buyers took the bait, revenue growth would nullify the 3/4 drop in unit sales from the CD business.
P.S. The permalink to this blog entry is broken. That’s a bug in WordPress. If you put a % sign in an entry title, it will try to put that into the URL untouched, and that of course conflicts with normal URL escaping rules.