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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

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August 14, 2006

The European Premium for eMusic
by David Harrell
A couple weeks ago, I posted about this thread at Marginal Revolution, which discussed why some things cost so much more in the UK relative to the US, including iTunes downloads. One obvious reason is higher taxes (the ubiquitous Value Added Tax), though taxes alone don't account for the premium that iTunes customers are paying in the UK. It seems like iTunes pricing in the UK also takes the retail prices of CDs into consideration. And for retail CDs and other consumer items, there are all sorts of reasons given for higher UK prices -- higher minimum wages, higher rent rates for retail stores, and so on. Plus, music licensing is generally more expensive in Europe (see below).

Now that eMusic has launched its European service, subscribers over there are going to be paying a lot more for their subscriptions. It appears that current customers will get to keep their old subscription rates, though they'll get socked with the VAT now that eMusic has an official European presence. But new subscribers will have to pay a fairly large premium BEFORE the VAT is accounted for.

This post at Swindleeeee gives a complete breakdown of the new pricing schedule for eMusic customers in the UK and the rest of Europe:
Prices for all Basic plans were increased 46% in the UK and 42% in the rest of Europe.

Prices for all Plus plans were increased 30% in the UK and 24% in the rest of Europe.

Prices for all Premium plans were increased 22% in the UK and 15% in the rest of Europe.

Booster pack prices increased from 42% to 62% depending on region and the type of booster back. As with the subscription plans, the highest increases occurred with the lowest-priced packs.
Again, the percentage increases listed above are all BEFORE the VAT is added in. For all I know, eMusic might be paying out all sorts of additional fees and licensing payments in order to offer the service in Europe, leaving it with it comparable margins for US and non-US subscriptions. That's pretty much what eMusic said in an e-mail response to one subscriber:
The costs of selling music in Europe are higher than in the US, and by launching European sites, we must adhere to national and international laws requiring VAT collection and compensate the various labels, publishers, and artists under the terms they require. As a result of this reality, we were required to make various price adjustments.
Still, it seems like music downloads would be a product where a universal price might work. No packaging costs, no shipping costs, no salaries for retail, etc. Are the higher licensing/publishing fees for Europe really enough to push prices so high, even before the VAT?

Obviously, some European eMusic subscribers aren't thrilled with these changes. Here are some comments from recent threads on the eMusic subscriber forums:
I don't see a possible reason behind this. Emusic is an online site, not a brick and mortar shop, what possible need could they have for a European base? The problems before were to do with labels, not the location of the company, surely deals with UK labels could still be sorted out from the US?

I now see pricing in pounds rather than US dollars, and the prices have gone up across the board. With a 10 track booster now costing £4.99 prices are creeping up towards the current itunes level of 79 pence per track.

The prices have in fact gone up. Till now a track cost me about 23-25 Eurocent (based on the 40-track-subscription and taking the Euro-Dollar exchange rate into account). From now on a track (new subscription) will cost about 32 Eurocent (which ist considerably more than just VAT added).

Anyway, it'll be interesting to see what portion of the European premium is paid back to artists and labels. I'll follow up with an update as soon as we receive some sales from the eMusic Europe store.


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