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Amazon matches Apple's $1.29 for top tracks while Walmart undercuts by a nickle

Digital music stores are where the glut of music sales come from today, much to the chagrin of the record industry. In the heyday of the industry, sales of physical formats like CDs and tapes were big money, but today's digital tracks are low margin leaving the record companies with a fraction of the profits they previously enjoyed.

The leader of the digital music revolution and the largest music retailer around is Apple's iTunes Store. Yesterday, DailyTech reported that Apple had moved to the tiered pricing model that had been expected. The tiered pricing was in response to the record labels wanting more control over the pricing of songs on the popular music store according to some reports.

With iTunes being the clear leader in the digital music industry, it comes as no surprise that the smaller players in digital music follow Apple's lead. Such is the case with the new iTunes pricing structure. Amazon and Walmart have both now increased the price of some of the songs in their digital catalogs to the same level as Apple.

Electronista reports that as of today, both Amazon and Walmart have introduced a tiered pricing structure. Ten of the top 100 songs on Amazon increased in price to the same $1.29 per track as iTunes. On the Walmart digital music store, the top price for popular tracks is now $1.24 per song.

Amazon and Walmart also followed Apple's lead by reducing the price of some tracks in the digital libraries. Select Amazon songs now sell for 79 cents while Walmart sells some select tracks for 64 cents. Electronista says that the Apple hike and subsequent price increases on two of the other major digital music stores highlights that the digital music industry is raising prices across the board.

What isn’t clear at this point is if the record labels have demanded a larger cut of sales from digital tracks or if the digital music retailers have simply decided to squeeze more out of their customers.

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What Isn’t Clear
By ViRGE on 4/8/2009 11:35:57 AM , Rating: 2
What isn’t clear at this point is if the record labels have demanded a larger cut of sales from digital tracks or if the digital music retailers have simply decided to squeeze more out of their customers.

No, it's pretty clear that the labels are demanding a larger cut of sales (or rather they're forcing price increases). Apple was the only one big enough to keep the labels at bay, which resulted in things like Amazon getting to go DRM-free faster in order to try to destabilize Apple.

Something (I suspect it to be the matter of cellular music sales and being able to go DRM-free all the way) finally made Apple capitulate to the labels demands. Once Apple fell, no one else was strong enough to resist the demands of the labels.

None of these guys are making any money off of music sales, and WalMart may very well be losing money via loss-leader pricing.

RE: What Isn’t Clear
By TomZ on 4/8/2009 11:42:24 AM , Rating: 4
None of these guys are making any money off of music sales, and WalMart may very well be losing money via loss-leader pricing.
I doubt that very much. I keep hearing that nobody is making any money from these downloads, but I just can't believe it. The entire cost structure for digital music is super-low, from manufacturing to inventory to distribution. As of mid-last-year, Apple had sold 5 billion songs on iTunes, which translates to about $5B in revenue. Somebody's making some money there.

RE: What Isn’t Clear
By Shadowself on 4/8/2009 2:14:16 PM , Rating: 3
Apple has repeatedly reported in their SEC filings that the iTunes store is doing barely more than break even. The cash flow is huge, but Apple's fraction does little more than make up for the costs of developing and maintaining the site.

Apple has repeatedly stated (and reporters & analysts have repeatedly stated) the purpose of the iTunes store is to sell iPods and iPhones. Apple makes its profits there.

RE: What Isn’t Clear
By TomZ on 4/8/2009 2:25:24 PM , Rating: 2
Think about this: 5 billion songs sold...assume Apple keeps $0.20 on averaget...that is US$1B of revenue. Do you think that the cost to develop and maintain iTunes over that time period is even close to that figure?

No, I think Apple's story about "just breaking even" on music download is PR BS. I think the reality is they are making plenty of money on both the hardware and the content.

RE: What Isn’t Clear
By melgross on 4/8/2009 3:52:41 PM , Rating: 2
Apple has stated that they make almost five cents profit per 99 cent song.

It's been estimated that the other sites make much less, or nothing, as their sales are so much lower, and their costs are higher per sale as a result.

Even so, the labels have stated that they get paid more from Apple. Interesting!

RE: What Isn’t Clear
By Doormat on 4/8/2009 9:02:47 PM , Rating: 3
Bandwidth. Servers. Lawyers to negotiate with the music industry (who probably don't get paid enough to put up with their garbage). Up until recently, development of DRM algorithms. The iTunes software they give away for free (or at least part of it, since its the mechanism through which the store is delivered, in addition to being the only method of managing iPod/iPhone devices).

RE: What Isn’t Clear
By MadMan007 on 4/8/2009 4:36:18 PM , Rating: 2
I'm sure the Apple accountants or managers shuffle (pun!) funds around just about however they like or fudge costs as long as it's not insanely off enough to raise flags. If they don't make money the other sites probably don't either and I don't believe the others would be in it for slim margins.

RE: What Isn’t Clear
By tallcool1 on 4/8/2009 11:54:01 AM , Rating: 5
What isn't clear is how does the movie industry manage to sell us a DVD of a blockbuster movie for the same price as a the recording industry sells an album (CD) which costs substantially less to make, yet they complain they are not making money?

RE: What Isn’t Clear
By DASQ on 4/8/2009 12:11:25 PM , Rating: 4
Because those damned spinners aren't going to buy themselves, yo

RE: What Isn’t Clear
By kmmatney on 4/8/2009 3:37:30 PM , Rating: 2
Decent point, but movies also make a lot of money at the box office, which you don't get with an album.

RE: What Isn’t Clear
By Homerboy on 4/8/2009 4:06:32 PM , Rating: 2
Music "artists" (I use that term loosely) have world-wide tours which the labels get a decent cut of).

RE: What Isn’t Clear
By AntiM on 4/8/2009 12:52:16 PM , Rating: 2
This article(from 2005)

says that the record industry receives somewhere between $0.65 and $.85 per song file (different sources quote different numbers). The rest goes to iTunes who picks up the tab for everything.

Steve Jobs has staunchly defended the $.99 per song model, so I doubt that anyone other than the labels are responsible for the pricing changes.

The labels are still trying to live in the past when they made enormous profit margins off the sale of CDs.

I have nothing against them raising their prices, the market will determine whether or not they succeed. They can charge whatever they want for their product, people don't have to buy it, and there are certainly other ways of acquiring it.

They can continue to try to market their shoestrings to a world that's wearing loafers. The labels are desperately trying to remain relevant in a world that doesn't really need them anymore.

"DailyTech is the best kept secret on the Internet." -- Larry Barber
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