Warner Music Downloads Slow After Price Hike

Ars Technica reports: It has been about a year since the music labels got what they had been asking for from the major online music stores: tiered music pricing. Problem is, that system may not be working out as well as the labels had hoped—Warner Music Group reported slowed digital music growth since the pricing changes, and even though the company tried to spin the news as positive, it acknowledged that the timing may not have been the best.

Warner's digital sales (and by "digital," it means online sales, not CDs) made up 20 percent of its total revenue in its quarter ending on December 31, 2009—flat sequentially from the previous quarter. Unit growth in "digital track equivalent albums" saw a five percent growth rate during the December quarter, though it's down from 10 percent in the September quarter and 11 percent earlier in the year. Digital revenues were up 8 percent year over year, compared to 20 percent the year prior.

As noted by MediaMemo, this slowdown in growth has all happened over the same period of time that the iTunes (and Amazon and Wal-Mart) pricing changes went into effect. No longer are digital customers able to rely on a flat 99¢ (or in Amazon's case, 89¢) price tag for music tracks—instead, they vary between 69¢ and $1.29 depending on popularity and what seems like totally arbitrary decisions.

Warner CEO Edgar Bronfman Jr. insisted during the company's quarterly conference call that the pricing hike has given the company a positive overall result, but "he also suggested that in hindsight, perhaps it wasn’t a great idea to raise prices 30 percent during a recession," reports MediaMemo.

According to Nielsen SoundScan's numbers for 2009, digital track purchases were up 8.3 percent during 2009 while digital albums were up 16.1 percent. Still, those numbers weren't enough to offset the continued decline in physical album sales, and it seems that Warner's digital growth numbers are slightly lower than the industry as a whole.

The obvious comparison is the current fight over e-book pricing, with book publishers making a fairly coordinated stand against what they perceive to be artificially depressed e-book prices at Amazon. The publishers argue that they should be able to set their own prices, whether or not Amazon wants to take a loss, and simply pay out a percentage of the selling price to the seller (known as the "agency model"). The spin here is that it's better for the authors and publishers this way, but that depends on the definition of "better." Is lowered sales volume better? It's not if your goal is to get your work into as many hands as possible, but it's not so bad if you're making up for that volume with the increased prices.

Still, book publishers may want to take a lesson from Warner in this fight and save its push for pricing independence for better economic times.