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You¿ll get used to $1.29 songs at the iTunes Store

It's been a week. Are you still hopping mad about Apple introducing a triple-tiered pricing scale at the iTunes Store that tops out at $1.29?

Maybe some of you still are. But in all probability you'll get over it in time. And if you bought music from the iTunes Store before, chances are you'll continue to do so even if you boycott it for a while.

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As of April 10, Apple did what it said in January it would do – leave behind the 99 cents for each song doctrine for variable pricing at three levels: 69 cents, 99 cents and $1.29.

Although I'm just as displeased about this development as everyone else, from a business standpoint it makes sense for Apple.

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It's obvious the record labels pushed for this increase, particularly considering that both Amazon and Wal-Mart both added a more expensive tier to their services ($1.29 for Amazon, $1.24 for Wal-Mart) almost immediately after the iTunes increase went into effect.

But I wonder how much Apple protested. With its dominant market position, Apple can best afford to risk charging more. And you can bet Apple gets a proportional cut from the price increase, which will make the iTunes Store more profitable.

Some have argued that the price increase will deter customers and eat into profits for all digital music vendors.

In particular a Billboard report last week that noted how many of the $1.29 songs slipped several positions in the charts, while several 99-cent songs moved up.

That's to be expected, but it won't last. Anyone who prefers shopping at the iTunes Store will recover from the sticker shock within a few weeks or, at most, months.

Let me share a little story. A couple of years ago, the snack vendor at the Baltimore Sun raised the prices on everything in the machines. For the first week, I bought nothing out of those machines.

But after another week or so, I cracked. I bought a bag of chips. A few days later, a cinnamon Danish. I wasn't buying as much as before, but I was buying.

As the months went by, my snack purchasing gradually climbed back to its previous health-endangering level. I eventually stopped thinking about the price increase.

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You may be ticked about $1.29 songs now, but you want your music and you'd rather not go the piracy route. Otherwise, you wouldn't bother paying for legal downloads.

The reality is neither Apple nor its rivals needs the 99-cents-fits-all policy anymore. Yes, it was genius in 2003. It kept things simple and encouraged a wary public to try out iTunes.

But as a business tool, it has outlived its purpose.

Truth be told, the new pricing structure is not all that bad for customers. Apple has succeeded in completely eradicating digital rights management from legal downloads. Most albums remain $9.99. And if we ever see more of those 69-cent songs, fans of less in-demand music will actually pay less than before.

As for Apple's competitive position, it remains unchanged. Amazon and Wal-Mart have less expensive offerings on the whole, but that was true before last week.

Apple will continue to dominate. According to research firm NPD Group, 87 percent of people who download digital music use the iTunes Store. Amazon is second with 16 percent, Wal-Mart a distant third.

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Digital music customers seem less fixated on price and more on convenience and ease of use. Having the dominant MP3 player helps, too.

"Customers are pleased with the Apple ecosystem," says NPD's Russ Crupnick in his blog.

Another Apple advantage is those ubiquitous gift cards.

Crupnick says gift cards usually negate concerns over price. "Let's face it, many consumers look at the face value of the gift card, rather than the cost of each song they're purchasing."

Finally, many downloads bought elsewhere end up on iPods anyway. The iTunes Store profit is a bonus. As long as people keep buying iPods, Apple wins.


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