UPDATED: Amazon and Wal-Mart follow Apple, also raise MP3 prices

Posted by Rick C. Hodgin

Chicago (IL) - Just one day after Apple implemented its previously announced three-tier pricing structure, both Amazon and Wal-Mart have followed suit, offering songs at $1.29 and $1.24 respectively. Unlike Apple, however, Amazon and Wal-Mart are actually offering some lower-priced songs as well, at $0.79 and $0.89 for Amazon, and $0.64 per song at Wal-Mart.





It appears the three-tier (or more-tier) program has been adopted, and will soon be the standard for all major online MP3 retailers. This move was forecast late last year by Apple as a type of battle going on behind the scenes with the Music Industry's leaders. Apple became so outraged over the pressure that they threatened to close down the MP3 portion of the iTunes store if they could not maintain profitability. Within three months after that threat was made, Apple announced the upcoming three-tier price structure in January, which would take effect in April.



Things could be worse, however. There is another technology which may soon infiltrate the MP3 pricing structure. It's called Digonex, and stands for Digital Online Exchange. The company that developed and patented the algorithm, also called Digonex, has already proven it works on an independent online MP3 website called MusicRebellion.com (now defunct).



Digonex is a complex mathematical system which constantly analyzes buying and selling trends, increasing the price when demand is high, lowering it when demand is low, thereby maximizing sales and profit at each point based on demand. As a result of this adaptive system, the price you pay for music could literally change throughout the course of a single day, or even hour by hour.



Digonex also contains other algorithms which can ensure that by a certain date a certain number of items are sold, for example, along with other forms of targeted goals. It does this by adjusting the price to reach those goal as required by the algorithm.



The company Digonex ultimately hopes to extend their algorithm beyond its proven application in music, and into all forms of online sales -- such as movie tickets, concert tickets, and all forms of downloadable content, making the purchase of all such items in this system as expensive as possible for consumers whenever they're popular. While this would be a great idea for a company's bottom line, the consumers would ultimately pay more for items at the very times when they're in peak demand.





Opinion



On the whole, it's a sad day for MP3 consumers. The reported battle between Apple and the music industry is over, and we lost, and money won.



The music industry holds all of the cards as the legal copyright owners of the music they know we want. And rather than keep prices low to have greater profits through more volume, they have chosen instead to go for our jugular by increasing prices as far as we'll let them. And the part that makes this the "sad day for MP3 consumers" is this: they know we'll buy it.



Frankly, I'm amazed they stopped at $1.29. I'm sure that in a few months when record profits are shown again, we'll see the $1.59, $1.69 and $1.99 price points for popular music, and probably ultimately the Digonex model applied across most popular tracks. And when that happens, I think we'll also see an immediate and corresponding increase in P2P music pirating.





UPDATED:  April 8, 2009 - 3:02pm CDT
Jeremy Eglen, COO and General Counsel at Digonex Technologies, Inc., contacted TG Daily today to provide a better explanation of the Digonex process, or algorithm.  He writes, "[Digonex Online Exchange] constructs a demand curve for all the items in its catalog, and prices each individual item to maximize its sales, revenue, or profit (whichever the client wishes). Pop songs tend to be fairly elastic as to demand, that is, an increase in price leads to a sharp drop-off in demand and vice-versa. Under DOE, popular items actually can often see a decline in price."