Apple cuts UK iTunes costs, but baits the labels
It's good news for UK music buyers - the cost of downloading music on the iTunes will be reduced to match that across nearly the whole of the rest of the EU. — But Apple's press release today reads a little like a ransom note …
Context & Ripple Effects
Apple is extending an autumn pricing offensive into Europe. In October 2007 Steve Jobs confirmed an across-the-board price drop on iTunes Plus tracks, and today the company brings UK download prices into line with most of the rest of the EU — a move that hands British buyers a cut while pointedly framing the labels as the party standing between Apple and uniform pan-European pricing.
The PDA piece reads the announcement like a 'ransom note': Apple is lowering shelf prices unilaterally and effectively daring the majors to absorb it or negotiate. That matters because a separate, unconfirmed report circulating this week suggests Jobs is separately working on winning the film studios over to more iTunes movie sales and rentals — pricing leverage built in music would strengthen that hand.
First-order effects
- UK music buyers immediately pay less for downloads than they did yesterday, while the four major labels see their per-track wholesale revenue on every UK sale fall unless they renegotiate.
Second-order effects
- Labels now face a choice of conceding Apple's pricing structure across the EU or accepting a two-tier European market where their catalogue is cheaper where Apple says it should be — pushing them toward variable pricing deals to recover margin.
Third-order effects
- If the pattern holds, the storefront rather than the rights-holder sets consumer music pricing, making label–retailer renegotiation a recurring feature of the download business and setting up the same fight over subscription pricing downstream.
The trend: Digital music pricing power is consolidating around distribution platforms like Apple, which can move retail prices unilaterally and force rights-holders to follow.