Why I support an iTunes dynamic pricing model

A recent article from Reuters reports that Apple may be changing its tune and could start offering a variable pricing option on iTunes.

After HBO formed a deal with the company that saw The Sopranos go for $2.99 instead of the $1.99 fee being charged for other shows, Apple has gone back to the table with other companies in an attempt to start a variable pricing scheme that could see shows being priced anywhere from 33 cents on up.

Of course, the very fact that Apple wants to institute variable pricing doesn't mean that it will happen. "When you get into that conversation, it's a slippery slope," one studio executive said. "Because we'll differ with them on what content is worth what."

And therein lies the rub. Should The Sopranos really be worth more than Lost? Should a show like Dexter go for something cheaper because it has less viewers than network shows? Sadly, there's truly no answer to the question of how much each show is worth.

And it's for that reason that I support the somewhat controversial, dynamic pricing model.

Dynamic pricing is a relatively new idea that reflects consumer demand. If a show is popular, the system will increase the price of that show. Once it loses steam, the price will be lowered proportionally.

And although NBC Universal wanted to institute this policy on iTunes when it was negotiating with Apple and the latter declined, it actually makes quite a bit of sense. After all, wouldn't it be far more fair to all parties involved if consumer demand dictated the price of a product?

Certainly some would say that it wouldn't be fair at all, but I'm not sure why they would make that assumption. In today's marketplace where consumer demand reflects the fate of almost any gadget, how is the application of dynamic pricing on entertainment any different?

When the iPhone hit store shelves, it was priced much higher than it is right now. Apple reduced the price to increase consumer demand and entice all those people who didn't buy one at first glance to buy one the second time around. It makes sense in that market, why wouldn't it make sense in this one?

Now I know what you're thinking: "a dynamic pricing model would precipitate wild fluctuations in pricing where today, an episode of 24 is $1.99, tomorrow it's $2.15 and the day after that, it's $1.50." What's so bad about that?

Surely the pricing range would be kept in check -- say, 33 cents to $5 -- and if a show is really more popular, it's far more valuable to all of us. And in my mind, we all win.

Here's how:

Apple wins because dynamic pricing should increase revenue and customer satisfaction. For those titles that people aren't buying, a nice low price of 33 cents would entice them to try it out. If people find that they like the show and consumer demand increases, Apple will make even more on each episode as the price rises. Aside from that, people would be more likely to try out shows that they've never heard of at that price point and probably wouldn't mind having more entertainment at their disposal.

The studios would be more than happy to enter into a dynamic pricing scheme because they get what they've wanted all along: a model that accurately reflects the popularity of a show. After all, isn't it safe to assume that a more popular show will incur greater advertising revenue for the studios than reruns of Friends? If so, it's only natural for the studios to expect a higher rate of return on more popular shows. And although I've been critical of them recently, I don't think that's too much for them to ask.

We would benefit the most from a dynamic pricing model. Sure, your favorite shows may feature a higher price tag, but let's not forget that demand will dictate pricing. Apple may set higher prices for more popular shows off the bat, but if the majority of users don't want to spend $4 per show, the price will come down proportionally until a more suitable price level is met. On the other hand, it'll also give us the opportunity to try new shows that are simply too expensive right now. Sorry, but I simply don't think Dirt is worth $1.99. But if demand puts it at 50 cents, I might be a buyer.

At first glimpse, dynamic pricing may turn some off. Some people are worried that pricing will change drastically over time and we'll all be left out in the cold. But I believe that if done properly, it could be the next wave in media pricing. And if you ask me, consumer demand should dictate pricing in every industry. Why should entertainment be any different?

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