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Will Tiered Pricing Threaten iTunes' Music-Biz Dominance?


As promised months ago, Apple has implemented a tiered pricing structure for iTunes music tracks today. But with many of the same tracks available from Amazon at a lower price, and a fresh report showing that Amazon's music store is slowly catching up with iTunes, this could be bad timing for Apple.

The new pricing layers in iTunes are $0.69, $0.99 and $1.29: Steve Jobs has stated that "many more songs" would be priced at the lower end of the threshold, with the top bracket reserved for hot new items. Engadget took a quick glance at the top ten singles and found that six of the songs were selling for $1.29, compared to the (largely similar) top 10 at Amazon, where all the tracks are $0.99. The result implies that if you consume more brand-new music, you'll be paying more for it at iTunes, but if you're into fleshing out your music library with older tracks it may cost you more at Amazon.

Some new research produced by NPD has shown that Amazon is slowly gaining on Apple, even if it's still way behind in the figures: 87% of digital music purchasers in the U.S. in 2008 used iTunes and just 16% used Amazon. Amazon has also just announced a sale on 100 top tracks to celebrate reaching 5 million downloadable songs, and that will undoubtedly tempt many people to shop at the fledgling MP3 store in the short term.

But NPD analyst Russ Crupnick also notes that the Amazon demographic is older when compared to Apple's. Apple may have just shot itself in the foot by making its store more expensive for the younger, chart-music-loving people who are a key sales demographic for iTunes and iPods. But if you read into Steve Job's quote from the Apple press release announcing the price tiers months ago, then apparently it's not Apple's hand on the gun: the music labels are, who are charging Apple more for the rights to sell newer music, are the ones to blame. And apparently this effect hasn't hit Amazon (perhaps because its download business is still so small).

The whole thing is terribly complex, but remember that Apple has the enviable position of controlling an entire digital music ecosystem: iTunes is the top music-selling portal, and it interfaces directly with the top selling MP3 players, the iPod family. As such its position is steady as a rock for the time being, whatever the immediate effects the tiered prices cause.

[via Electronista, Engadget]