iTunes' Inevitable Price Increase

I know I am not the first to blog about the price increase on Apple’s (NASDAQ: AAPL) iTunes store from $0.99 to $1.29.

Do I think it will enhance shareholder value? I hope so.

I heard the news on my daughter’s friend’s Facebook page. An 11 year old writing on walls asking for links for free music, fancy that. After a discussion on the percentage price increase per song (30.30%), the conversation moved on to an ethics lecture (priceless), and then as the resident annoying adult I am then provided an iPod/iPhone MP3 technology dissertation (less than free since no one was listening).

The tech change is material. Songs can be shared in unlimited quantities and played on any portable device. As far as the pricing goes, Apple states that the vast majority of the songs on iTunes will remain $0.99. We all know that does not include new songs from popular artists.

The competition is pretending to react. Yahoo (NASDAQ: YHOO) Tuesday changed its strategy offering free music-related customized aggregation pages. Their users will be able to customize the page, add connections to iTunes or Amazon (NASDAQ: AMZN) as well as other sites like Google’s (Nasdaq: GOOG) YouTube. Yahoo appears to be playing tag along rather than attempting to compete directly with Apple – a smarter choice.

Of course I had read this was coming, but like some evolving relationships that have to move forward (like a shark) or die, I simply was not prepared.

Leave it to Apple to sell the razors at a strong price and still be able to raise the price of the blades.

Disclosure: Mr. Corn is the Chief Investment Officer – Equities of Beacon Trust Company. Apple, Google and Amazon are constituents of various investment strategies under his management. He owns shares in these firms directly through his investments in these strategies.

Comments

[fund905]

Your Puns are soooo, funny! I think you should most certainly find a new career. No pun intended. Better yet get a life, pun intended, you decide?

2009 Apr 08 02:18 AM

[Timeline Strategy Consulting]

Hey Cetin,

Yeah, the program that has introduced, to Apple, 100 million consumers that would otherwise not have any exposure to Apple, doesn't contribute anything. Yeah, the program that allows synching for 20 million iPhones doesn't mean anything. Yeah, the program that allows HD Video downloads and provides the anchor to all Apple content doesn't contribute anything. Um, it's the software stupid. Even if one calculation shows that iTunes is not profitable (which I would highly dispute) what is the options value of the consumers who use iTunes to buy Apple stuff?

Oh, by the way, everyone who sells the same tracks followed suit with price increases. Even though they don't have the market share or the intuitive interface of iTunes, they followed Apple because why would a company sell something for less than the market will bear?

2009 Apr 08 09:54 AM

[brewer]

The real news is the elimination of DRM, which Apple has been promoting all along. Most of the stuff I buy is 'classic' and probably won't go up, in fact, it's cheaper than when the iTunes plus feature first debuted.

But the iTunes software is so good, I don't see how anyone uses anything else.

Cetin, iTunes music is the loss leader to sell iPods. There is no way iTunes will go away, that is key. It was obvious when it first came out (for Mac) that it would be key to Apple going forward. It's been fun to watch it unfold.

2009 Apr 08 10:40 AM

[ChadS]

In the end, it will be the company that makes the songs most affordable. Apple may have the best mp3 players and may always win that competition, but they can easily lost the mp3 downloads race if they can't compete with low prices. In today's economy, people won't be loyal to a specific company, but rather they will flock to the best prices. And right now, the door is wide open for Amazon. Amazon's prices are better and they have outstanding deals. This is an area that they do very well in. Their mp3 album deal of the day is awesome with complete album downloads for usually under $3. Those type of promotions are needed to win the battle. I buy a few albums a week. I use the following page and gadget to make sure I never miss a deal. I've saved a lot and built up a nice collection:

www.frugalgadgets.com/...

2009 Apr 08 11:37 AM

[User 391385]

Does anyone really think that this was Apples idea?

2009 Apr 08 11:56 AM

[Timeline Strategy Consulting]

Hey User 391365, do you think that your view of strategy may be biased toward, oh I don't know, the frugal end of the music market? The only clue I have is, you know, your word selection, including:

"affordable"
"low prices"
"best prices"
"prices are better"
"outstanding deals"
"under $3"
"promotions"
"save a lot"
and lastly
frugalgadgetsdotcom

I'm sure that Apple appreciates the advice about how they should race to the bottom but I doubt that they will take it.

Plus, let me ask who will win the music war. The company that has sold 150 million mobile music devices, including 20 million phones and at least 15 million more gaming devices, or the company that makes the.......Kindle.

Did you think this stuff through at all?

2009 Apr 08 12:06 PM

[Timeline Strategy Consulting]

Sorry, meant ChadS....


On Apr 08 12:06 PM TimboM wrote:

> Hey User 391365, do you think that your view of strategy may be biased
> toward, oh I don't know, the frugal end of the music market? The
> only clue I have is, you know, your word selection, including:<br/>
>
> "affordable"
> "low prices"
> "best prices"
> "prices are better"
> "outstanding deals"
> "under $3"
> "promotions"
> "save a lot"
> and lastly
> frugalgadgetsdotcom
>
> I'm sure that Apple appreciates the advice about how they should
> race to the bottom but I doubt that they will take it.
>
> Plus, let me ask who will win the music war. The company that has
> sold 150 million mobile music devices, including 20 million phones
> and at least 15 million more gaming devices, or the company that
> makes the.......Kindle.
>
> Did you think this stuff through at all?

2009 Apr 08 12:07 PM

[Synthmeister]

Sorry ChadS.

Amazon's prices are now the same.

2009 Apr 08 12:38 PM

[Doug, Mtn. View, CA]

Why isn't the title of this piece "iTunes inevitable price decrease"? I bought a bunch of songs yesterday for $.69 each, which is cheaper than it was only last week. Yet, ALL of the bloggers only talk about the rise in price of the pop junk to $1.29. The stuff I listen to and want to buy just had a price DECREASE *and* DRM was stripped off. Why didn't this fact get any ink?

2009 Apr 08 12:51 PM

[BerkeleyBob]

I have bought a fair amount via iTunes. I am not as concerned about the elimination of DRM but pleased with the upgrade to lossless formats. I continue to buy CD's, some downloaded, and vinyl. The sound quality of MP3 format is surprisingly good. Times tough for classical music lovers, a shrinking market for sure. I am upgrading in near future, will buy a Mac Mini and the 1 Gg. Time Machine. ITunes represents a good value, particularly for the listener who wants to "cherry pick" one or two cuts from a popular album even at the higher price.

2009 Apr 08 02:01 PM

[peter02l]

Please let me know what those 69c songs are. I haven't been able to find any.

2009 Apr 09 02:25 PM