Want That Hit Song on iTunes? It'll Cost Ya

Record Labels Wrangle Three-Tiered Pricing but Concede to Apple on DRM

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A correction has been made in this story. See below for details.

NEW YORK (AdAge.com) -- In a huge win for the major record labels, Apple announced today that iTunes would offer songs for as little as 69 cents.

While Apple may have conceded somewhat on the pricing issue, it got what it wanted in terms of eliminating DRM, or digital-rights management.
While Apple may have conceded somewhat on the pricing issue, it got what it wanted in terms of eliminating DRM, or digital-rights management.
Under a new three-tiered pricing structure, iTunes songs will cost 69 cents, 99 cents or $1.29. How much a song costs will be determined by its popularity, allowing labels to charge more for songs that are most sought-after at the time of purchase.

So much for simplicity
For the past six years, Apple CEO Steve Jobs touted the simplicity of iTunes' all-songs-for-99-cents pricing as one of the keys to its success. But in the past several years, as digital-song sales have exploded amid declining physical-album sales, record labels have sought greater control over pricing, wrangling with Apple privately -- and sometimes publicly -- over the issue.

Both parties had lots to lose if they didn't come to an agreement on pricing. Apple needs the record labels' cooperation to make iTunes work. For the labels, Apple's iTunes has been the most successful attempt to get consumers to pay for digital distribution.

But while Apple may have conceded somewhat on the pricing issue, it also got what it wanted in terms of eliminating digital-rights management, or DRM, the technology that protects a song from being copied at will. Apple also announced today that 8 million songs from major labels will be sold DRM free, and it expects that number to grow to 10 million by the end of the quarter.

Not the only game in town
It used to be that Apple's iTunes was the only digital-music game in town -- at least the only one that mattered. That's not the case anymore, although it's unclear how much of an influence competitive digital-music stores, which allow variable pricing, had on this decision because none of the companies regularly report sales of digital music.

AllThingsD.com recently cited music executives who pegged Amazon's share at 5% to 10% of the digital-music market -- minuscule compared with iTunes' 70%-plus share. In April, Apple's iTunes passed Walmart to become the largest music retailer in the U.S.

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CORRECTION: An earlier version of this story incorrectly stated that the most popular songs would cost $1.69. They will cost $1.29.
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