Music industry watch

Online downloading price war: Part II

A while back I expecting a downloadble music price war, and Wal Mart fired the first shot, and now Real Networks followed suit and dropped their download prices:

Media software firm RealNetworks has halved the price of its music downloads in an aggressive attempt to boost its share of the online music market.

The company is offering songs for $0.49 each, down from the usual $0.99, while albums are available for just $4.99.

Hmmm. Joe Gratz points to the CD Baby page that lists what CD Baby artists get paid through these services. At 65 cents per song and $6.50 per full-album, Real Networks is now selling music at a loss -- clear across the board.

I just don't know if loss leading your entire store makes much sense. Even if you're trying to gain marketshare -- are a few cents going to convince people to switch from iTunes to Real and have some of their music in one system and some of their music in another? At least on the iPod they can be in one and the same, but on the desktop the split experience sucks. I'm curious to see how this will shape up.

This makes me think more about Apple -- their protected their hardware business from price cannabilization by enforcing consistent prices and avoiding discounts like the plague. While this would be enough to bankrupt some companies, Apple is doing well for itself. (Unless you take the viewpoint that only world domination is success, and simply running a profitable business is a failure) I wonder if iTunes can stand up in the online music price war that is unfurling. The customer's barriers to switch away from Apple are high -- will a few cents per track make that much of a difference?

Posted by Mayhem at August 18, 2004 11:33 AM