Variable Pricing? You'll Shoot Your "i" Out, Kid.
Apple (AAPL) CEO Steve Jobs is so intent on extending his company’s lead in online music sales to the mobile market that he may finally be willing to give up the one-price-fits-all model that’s long been a cornerstone of Apple’s iTunes Music Store’s business model.
Cupertino is reportedly in talks with some of the major music labels about adding over-the-air downloads and a greater variety of ringtones and ringbacks to iTunes in advance of the debut of the 3G iPhone. But getting the labels to agree to such a thing may come at a price, or rather a variable-pricing model.
The labels have long wanted iTunes to abandon its policy of selling songs at a flat rate of 99 cents in favor of a variable-pricing system that allows them to charge more for popular tracks. In the past, they haven’t had the leverage they needed to force Apple to do this. But with the mobile music market at stake and the company gunning for a big 3G iPhone launch come June, Apple may have no choice but to agree to the labels’ terms.
“[Mobile is] clearly an opportunity Apple is missing,” IDC analyst Lewis Ward told Wired News. “And Apple is going to want to do it all themselves, but these OTA music storefronts have not sold very well. Maybe there’s secret sauce Apple’s thinking about, but the track record [of mobile music and ringtone stores that require a credit card rather than charging users via their cellphone bills] has not been impressive to date. The real issue is billing. People are much more comfortable with paying through a carrier [because] you don’t have to enter a credit card number or be worried about security. … That puts the carrier in the supply, and the carrier is going to want their cut, which means the margin for Apple goes lower.”