Posted by Kevan Lee :: May 5, 2009 @ 6:39 am

Up until recently, music fans were charged the same exact price for the teenage crooning of Hannah Montana as they were for the timeless compositions of Ludwig Von Beethoven. Travesty? Not exactly. Cruel joke? Only kinda. Economic opportunity? Bingo.

Where most see a chasm of fundamental musical elements, online mp3 retailers and music labels saw a chance to squeeze a few extra cents out of crazed consumers. iTunes announced recently that it would be introducing pricing tiers across its catalog of songs, and other retailers like Walmart and Amazon quickly followed suit. Meanwhile, music labels placed their hands together, twiddled their fingers, and sneered, "Excellent."

It appears that the different pricing levels will be driven by consumer demand, in much the same way that record stores use the practice of charging more for their best-selling items. In online music stores like Apple's iTunes, the more popular songs will see their price jump over $1.00 apiece to $1.29. The mediocre masses in the middle will most likely remain at their current prices, and the less known tunes will essentially hit the bargain bin with prices slashed, in some cases, under 70 cents per song. For example, there's a good chance that some day consumers will be paying $1.29 for Eminem's latest, $0.99 for a track from indie group She & Him, and $0.69 for Christian cover band Apologetix's "Should I pray or should I go now?" Apologetix fans, rejoice.

What remains to be seen is how consumers will react to the changes. iTunes, Walmart, and Amazon have to be cognizant of the torrent cottage industry that many people use to get their songs for the low, low price of free. The spawn of Napster still exists in a very real way, and raising mp3 prices too far might drive whatever demand there was for another Limp Bizkit album straight to Bit Torrent for the free version.

However, the decision to raise music prices was most likely not made with these file sharers in mind. Rather, it was made with blindly loyal consumers in mind.

Apple, Amazon, and Walmart have created a customer base that is loyal to mp3 purchasing. Whether motivated out of guilt, simplicity, easiness, or vicarious justice, these shoppers are in a habit of getting their tunes from the same place. And they aren't going to mind an extra dime here or an extra quarter there. Or so the sellers hope.

One place that surely doesn't mind the higher prices is the music industry, and in particular the Mr. Burns-y music labels. In an article that appeared on Information Week, Antone Gonsalves claims that labels have been clamoring for a different pricing structure for online music, but they have only recently gotten Apple on board. As the (far and away) market leader, Apple's iTunes was key to changing the culture of online music shopping, and now more players on board, the music landscape is sure to be much different.

La La Media, which sells tunes and also offers streaming music over the Web, called the change an "industry shift."

"You will see much more variable pricing by all music retailers, with the price moving higher on some tracks and lower on others," the company said in its blog.

Music labels are happy. Online music retailers are happy. But only time will tell what consumers think of this.

Savvy shoppers may have already made up their mind, as the increased prices might drive business to cheaper alternatives. Assume that someone is out to buy the new Britney Spears album. In the good old days of, well, a couple days ago, this person could jump onto Amazon or iTunes and grab a whole album for right around $10.00. Most of the time this would beat the store prices by a couple bucks, and it would be a much easier, hassle-free experience.

But with the higher music prices for popular artists, Brit-Brit's new album will not be so cheap online. Throw in the new online markup of around 30 percent for popular artists, and the tides have suddenly turned from online mp3s being the clear winner to big box retailers looking mighty fine. Chances are good that the higher prices of certain songs will drive savvy shoppers off of web pages and into stores.

Others who are used to buying songs for just under a dollar might be a little more gun shy when decision time rolls around. It's one thing to mindlessly add $0.99 tunes to an iPod, but when the price jumps over the $1.00 threshold, all bets are off. The psychology of 99-cent pricing is a tried and true business tactic. Messing with that might mean trouble.

"Most consumers are aware of `99' prices and why firms use them to make prices look cheaper," says Vicki Morwitz, a marketing professor at New York University's Stern School of Business and co-author of the research. "But because of the way the human brain reads, processes and codes numbers, we're still influenced by them."

There's no telling for sure how the common consumer will respond to an increase in digital pricing, but at least there is a silver lining for a certain portion of the public. Those who enjoy under-the-radar music couldn't have asked for better news. Instead of paying the 99-cent price along with everyone else browsing and buying on Top 40 lists, this eclectic bunch will be able to get their music on the cheap. At the very least, Apple's decision should drive more purchases from this group of buyers.

As for the rest of the music-loving public, the jury's still out. Online music retailers have a lot of things going against them, from greater competition to price-point psychology (and don't forget about the timing; it is a recession, after all). Only time will tell if the tiered system is one that consumers will figuratively and literally buy into.