Amazon & iTunes Cut Music Prices

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Amazon has been experimenting with digital music prices by offering an array of full-length albums for less than $7.99. Each week they pick five albums to sell for $5.00, and for a limited time U2’s latest album “No Line on the Horizon” was available for only $3.99. Similarly, up until recently all the music in the iTunes catalog was priced at $0.99 per track, but in April iTunes will also adjust the price of their MP3s: $0.69, $0.99 and $1.29 depending on the record company.

Amazon MP3 Albums for $5

Why the change?

  • Amazon might be using the low prices to entice new customers; potentially to take market share from Apple.
  • Cross-subsidies: Amazon.com might be selling cheaper music with the hope that customers will buy something else in their online store. Wal-Mart has been doing this for years by offering DVDs below cost in order to lure customers into their store.
  • A response to shifts in the digital-music market. (ie. to stay competitive)
  • A decrease in the price point may make music reasonable enough to buy. Remember that on Amazon the bestselling album of 2008 was being sold for $5.00.

The market price for music continues to fall towards $0.00 like an inverted Moore’s Law. I’ve drawn up a price comparison for a few of the popular music distribution channels to illustrate a gradual decline in the price of digital music downloads.

Digital Music Downloads - Price Per Song

*I’ve omitted streaming audio sites like Last.fm in order to visualize the market price for owning one digital music file.

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