That Price Increase

That Price Increase

Now that the initial joy regarding EMI’s decision to (at least partially) ditch DRM has faded, some people are up-in-arms about the price increase. Engadget started it yesterday. Lefsetz too. $0.99 DRM vs. $1.29 non-DRM per song.

As I mentioned yesterday, I think the pricing structure makes it apparent that DRM decreases the value of a product. The labels have been clamoring for variable pricing and/or higher pricing for some time now. If you’re going to increase the price, you have to justify it by providing more value. For $0.30, the consumer now gets a better bit rate and no DRM. From the label’s standpoint, they get to charge more and have some element of variable pricing. It’s called a win-win scenario.

More importantly, this move really puts the pressure on the other labels. EMI can now sell its catalog at $1.29 per song. Not so for the remaining labels. They’re stuck at $0.99. Do you think their shareholders are going to be happy or sad about this? (Hint: Sad.)

For the other labels to maximize their profits, they only have two choices at this point. (1) Raise the wholesale price to Apple, or (2) offer their wares free of DRM. If the labels truly believe that DRM prevents piracy, they can only go with the first option. But, as everyone on the planet knows, DRM only serves to anger the customer (the last person a company should want to anger).

Look for the other labels to follow soon. Sure, they may wait to see how this plays out for EMI. But once EMI starts cashing those checks, expect them to move on it.