The Price is Not Right

CD prices have been a sore spot for many music lovers. Our own online polls indicate that Stereophile readers think CDs cost too much (most think they should be under $10), while Stereophile editor John Atkinson has pointed out that for smaller labels, the economics of CD production only work when the prices are kept higher.

But what about online music pricing? Grabbing a song off of iTunes gets you the music, but with no full color booklet or CD in a jewel case that you can eventually trade or sell, are you still willing to pay CD-like prices? And consider that to fully load up a single 40GB iPod with music purchased from Apple's iTunes service will cost up to $10,000 at a dollar a tune.

With the number of fee-based online music services growing each month and legitimate online music distribution getting ready to take off, new findings from global research firm Ipsos-Insight's "Tempo" quarterly study of digital music behaviors reveal that Internet users in the US expect to pay a substantially lower price for a permanent full-length album download from a well-known, established artist than for a full-length physical CD.

The study finds that Internet users aged 12 and older feel that a price range of $9.99 to $14.99 is acceptable for a new, full-length physical CD release. But in contrast with CD pricing, the acceptable price range for a digitally distributed, full-length album download is only between $5 and $9.99—roughly $5 less than for a physical CD.

The study's author, Matt Kleinschmit, explains that these findings indicate "a significant decrease in perceived value for this product based solely on format or distribution method." The research concludes that these price expectations for a physical CD were consistent regardless of downloading experience, suggesting that lower prices for digitally distributed music are expected even among consumers who have not downloaded music.

"This may be indicative of a broader re-examination of the perceived value of music by consumers, in that they may be willing to pay more for a durable product that is perceived as more permanent and archival in nature, rather than a digital format that may be viewed as more temporary," says Kleinschmit.

In line with our own informal polling, the research also reveals that consumer acquisition for a new, full-length physical CD from a well-known, established artist will be "maximized" at an $11.99 price-point. At this price, says Ipsos-Insight, the greatest proportion of consumers indicated they would buy the CD (25%). In contrast, maximum consumer acquisition for a permanent full-length album download from a well-known, established artist will be achieved at a $7.99 price-point (with only 11% acquisition). The study notes that both of these price points are far lower than current market prices for new, full-length releases from well-known, established artists in each respective format.

Kleinschmit adds that two important points emerged from the study: "First, the price points that will maximize consumer adoption for both physical CDs and album downloads are much lower than those currently found in the marketplace. This suggests that recently launched online music services and traditional music retailers, both of whom are actively struggling to lure buyers to boost lagging music sales, may benefit from a more conservative pricing strategy. Second, the relative lack in purchase intent for a digitally distributed, full-length album download even at a $7.99 price-point is also surprising, and may indicate that consumers view digital distribution as a purchase channel primarily for individual songs or tracks, and prefer to purchase a physical CD when they want to own the entire album."