Comment : Apple Went Too Far With Variable Pricing In iTunes

Apple's announcement that it is going to apply different prices to different iTunes tracks depending on their popularity sheds an interesting light on the media company's relationship with its audience and the content industry.

Officially, the reason Apple gave to justify the price hike is that music labels have been clamouring for this change which would make music sales more profitable. Steve Jobs went as far as saying that the price tier would reflect what music labels would be charging the company.

Which obviously brings a burning question? Why did Apple cave in to the demands of the music labels? The company is notoriously condescendent when it comes to its commercial partners.

Apple knows when it has the upper hand and managed to get some extraordinary bargains out of the iPhone deal for example. In return for exclusivity, it managed to get most major phone networks (except the ones in China) to provide with concessions unheard of in the mobile phone market. The rest, as they say, is history.

The Cupertino-based company has, in effect, introduced a system similar to the Easyjet scheme where the most popular dates for travelling are the most expensive as well. Apple has only 3 tiers for now but nothing prevent it from introducing more tiers.

Furthermore, the mechanism behind the pricing strategy is still an opaque secret which means that prices could effectively change overnight. The Telegraph reported a few hours ago that nearly 20 percent of the Top 100 songs on iTunes are now priced at 99p with only one song hitting the 59p floor.

Choosing a "cheap" 59p should in theory ensure that the long tail of the 10 million or so tracks that Apple currently offers becomes more attractive but it could well be a bit too far.

Amazon is slowly turning into iTunes' most formidable opponent, one that will certainly get the backing of the content industry, with which it has been working for long and which despises Apple's perceived arrogance.

The e-tailer went the opposite way, discounting the most popular tracks instead - after all, in the world of economics, the more something is sold, the cheaper it should be, right? Which brings us to another question.

What is the real price at which the record labels are selling the tracks to Amazon and Apple (as well as other online music stores)? Are there any price differentiation? Is Apple being charged more and Amazon charged less or is the latter using the popular tracks as lost leaders?

Amazon's MP3 store is currently lagging behind Apple. It doesn't have any standalone players like the iTunes client and its online MP3 listing is nothing more than, well, a listing.

But it could partner, like rival 7Digital, with open source music player Songbird to build a rival to iTunes and Amazon is already present on Google Android's G1 Mobile phone.

Could there be a consumer backlash then? It is too early to find out and Apple won't certainly disclose any figures. BUT, Apple's changes couldn't come at a worse place. The music industry is between a rock and a hard place, users are tightening their belts and potent competitors are starting to appear. Maybe Apple went too far this time.