Three-tier iTunes pricing to save digital music?

Apple and major music labels are betting that the launch of three-tier pricing at the iTunes Music Store will boost music sales with a new mix of song-based packages and give consumers more options.

Apple has announced its new three-tier price points at 99p, 79p and 59p. Since opening in 2003 all songs in the iTunes store have been priced at 79p.

The previous 'one price fits all' strategy has long caused friction between Apple and the music labels, who argued songs should be priced differently to reflect their perceived value by consumers.

Music executives said the biggest advantage of the new pricing would be flexibility to create new digital products beyond the album.

"We're thinking outside of the disc to reach a new generation of consumers who are able to consume music on any device, it's not just the track anymore," said one music label executive, who was involved with the talks.

Major label owners like Vivendi's Universal Music Group, Sony Music, Warner Music Group and EMI Music say they can make money with more flexible prices and possibly help make music retail a profitable enterprise again.

Music sales have plunged as traditional retail outlets for CDs have shuttered and the growth in digital sales have slowed in 2008. Data from Nielsen SoundScan show album sales, once the profit engine of the music business, fell by 14 per cent in the US.