Apple (NASDAQ:AAPL) is considering a radical change in how it makes money on music downloads. Instead of charging for songs, it may give away all of the music on the iTunes service and make up for it by charging more for iPods and iPhones. Industry experts have long thought that the margins on the hardware are better than the money brought in by the download service.
Of course, the barrier to the ideal is whether the music industry will go along. According to the FT "Detailed market research has shown strong appetite among consumers for deals bundling music in with the cost of the device."
The labels may resist the idea because they would like more money from Apple and not less. It is not clear yet how much the big record companies will get from the increased charge for hardware if the music is free. Apple will probably try to do what it has done in the past. It will get one large music publisher to agree to a deal and use that as leverage to get the others to go along.
The Apple plan does partially solve one problem. Most dgitial music is pirated or comes from ripped DVDs. There is no point in stealing what is already free. The record labels make nothing from content which is stolen. The new program might give them a little more of the pie if the price of Apple's hardware goes up and they get a reasonable piece of the increase.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
1. This won't work. Apple will start to make iPods and iPhones of lesser quality. In order to get the money they want, the record labels will use their leverage to decrease the quality of the iPod product. More iPods that break will cause people to replace them more frequently. This then leads to more money for the record companies (from the sales of the hardware).
Posted at 5:55PM on Mar 20th 2008 by Tony
2. could you imagine if the price of apple products went up!? they are already absurdly overpriced
Posted at 1:44PM on Mar 22nd 2008 by adam