Last updated: January 6, 2009 7:02 pm

Apple brings in variable pricing on iTunes

Apple and the music industry have settled their biggest differences, with the iPod maker agreeing to allow variable pricing on its iTunes digital music store and the largest record labels dropping restrictions which prevented tracks from being copied.

The deal, announced at the MacWorld conference on Tuesday, heralds a three-tier pricing system on the world’s largest digital music store. Apple will allow music companies to offer older tracks for 69 cents and new hits at $1.29, as well as continuing to sell songs at the current fixed rate of 99 cents.

”We know that more songs will be sold at 69 cents than $1.29,” said Philip Schiller, Apple’s head of marketing. Variable pricing is expected to begin in April.

A third agreement will allow iPhone users to download tracks over the air at the touch of a button on third generation versions of Apple’s popular mobile phone, opening it to ringtones, which are highly profitable for the music groups.

Apple began removing digital rights management protection from 7m songs on Tuesday, bringing the number of DRM-free tracks from 1m to 8m. The remaining 2m songs in the iTunes store will be available without copy protection by the end of the first quarter.

Existing iTunes users will be charged 30 cents per track if they want to upgrade previously purchased songs to the higher-quality DRM-free format, called iTunes Plus. The new terms will apply around the world, although international pricing was not immediately disclosed.

EMI, the UK music group, agreed to drop DRM in 2007. Vivendi’s Universal Music, Sony Music Entertainment, Warner Music and many independent labels will now follow suit.

The three-part agreement, heralded by Tony Bennett singing ‘The Best Is Yet To Come’, could boost digital music sales, as the iTunes store is by far the largest download service, having sold 6bn songs to 75m customers since it launched six years ago.

The music industry has been wary of overstating the importance of iTunes, however, seeking to bolster competitors from Amazon.com to MySpace Music and Nokia’s Comes With Music handsets. A weak economy and declining compact disc sales also continue to weigh on the industry’s revenues.

Apple’s resistance to variable pricing, explained as a desire to keep digital music simple, has led to repeated clashes with the music industry.

In February 2007, Steve Jobs, Apple’s chief executive, deflected attacks on its resistance to “interoperability” - making iTunes tracks playable on devices other than the iPod - by challenging labels to drop their insistence on copy protection.

Over-the-air downloads will be offered to iPhones users simply, at the same price and quality as through the standard iTunes store, Apple said. The deal could challenge other mobile operators which offer music downloads to match the iPhone on pricing and simplicity.

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