Is the great eMusic pricing experiment over?

EMusic pioneered the music-by-subscription model nine years ago, and it's been refining it ever since. The latest iteration debuted Monday, when the service announced that it had finally struck a licensing deal with a major record company, Sony Music. Specifically, Sony will be mixing some of its back catalog (releases at least two years old) into eMusic's library of more than 5.5 million tracks. It's looks like an important step forward for eMusic's catalog, which to this point has been dominated by independent labels and acts. But it's yet another move away from the steep discounts and high-volume purchasing that have differentiated the company from the likes of Apple's iTunes Store.

Unlike Napster (the legit version, not the song-swapping network), Rhapsody and the handful of other services that tried to sell access to music for a monthly fee, eMusic has always offered subscribers ownership in the form of DRM-free MP3 downloads. The store updates the industry's old music-club model -- persuading people to buy music every month by offering discounts for bulk purchasing -- in two important ways: It sells music by the track, not the album, and it makes the discounts deeper. Or at least it used to -- as part of the Sony deal, the company has raised its price from $10 a month to $12, and lowered the allotment of tracks from 30 per month to 24. In other words, the price per track jumped from 30 cents to 50 cents. (Worse, it did so before adding Sony's offerings, which will be folded in later this year.)

Compared with iTunes, which sells individual songs for 69 cents to $1.29, eMusic remains a bargain. But it doesn't have iTunes' catalog -- it has a large selection of indie labels and some high-profile independent artists, including Radiohead and Paul McCartney, but few of the top hits. And its new pricing scheme isn't better on a per-track basis than the latest iteration of the major labels' music club, which offers mainly older ("catalog") CDs for $7 each.

In that sense, eMusic doesn't seem like the brave experiment in price elasticity that it used to be. The company offered labels less money per track than conventional music retailers did -- about 33 cents per track instead of 60 to 70 cents, judging by one band's royalties -- but promised to make up the difference by selling more tracks. In other words, it was the kind of lower-margin, higher-volume business that the Web promotes (e.g., Amazon.com). EMusic's value proposition was designed to induce fans to spend more on music over the course of a year than they would have otherwise, which would be a good thing for the industry regardless of the per-track results. But from an individual label's perspective, the question has always been whether eMusic's sales were incremental or cannibalistic -- in other words, whether eMusic was bringing in new customers or just offering discounts to people who would have otherwise purchased the label's CDs.

A few labels have tried to avoid the cannibalization problem by holding back their highest-profile releases from eMusic for several weeks. Some also pressed eMusic to increase its royalty payments by reducing subscribers' monthly track allotment. When the company launched the subscription service in 2000, it offered unlimited downloads for $10 a month -- an offer so aggressive, eMusic had trouble attracting labels and, consequently, customers. After Dimensional Associates bought eMusic in 2003, it wasted little time ending the unlimited-download plan, offering 40 downloads for $10 a month instead. That was good enough to attract more indie labels, which in turn drew more subscribers. Four years later, the offer dropped to 30 downloads for $10 a month. Now it's at 24 for $12.

The new pricing scheme may attract more labels, but the risk is that the service is now too expensive to draw in casual consumers. EMusic has been stuck in the aficionado ghetto -- its appeal has been limited to heavy consumers of music. By the time former Chief Executive David Pakman (a persistent and articulate advocate of the low-margin, high-volume model) left last fall, eMusic had about 400,000 subscribers -- not a whopping total by any means, and only half of what Rhapsody has drawn. The same problem afflicts Rhapsody and Napster, whose subscriber numbers have grown slowly in the last year, if at all. That's why Napster recently went the opposite direction with its pricing, introducing an all-streaming service for $5 a month, or one-third the price of its previous offer. Going from $10 to $12 a month doesn't seem like a sure-fire way to broaden eMusic's base, but there's no question that adding older Sony titles (including works by The Clash, Bruce Springsteen and OutKast) will increase its appeal. After all, the problem for eMusic and other subscription services might not be the price point. It may simply be that music fans don't like to commit to spending any amount on tunes month in and month out.

Source : Los Angeles Times Blog