As record labels typically charge between $0.65 and $0.80 per each downloadable music and the "industry standard" pricing structure has been set to $0.99 per song, the margins are already bit small (although compared to some other areas of IT business, 20 to 35 percent margins sound very good) for companies running the music stores. But the big problem is with payment processing, as most of the payment processing companies charge between $0.20 and $0.30 for each transaction plus appx 2 percent of the payment, profits seem to be virtually impossible to achieve for likes of iTunes. Some companies, most notably iTunes, "bundle" the customer purchases into bigger transactions to keep the fixed part of the payment processing costs as small as possible, but it usually means delaying the charges until the end of the business day and causes various other issues with payments.
PayPal now tries to use this fact to gather bigger slice of the emerging digital music business by introducing a payment processing plan that charges only $0.09 as a fixed fee for each transaction and then 2.5 percent of the purchase price. Difference might seem small, but if we hypotethically think the difference between $0.25 fixed price plus 2% of the average price and $0.09 and 2.5% of the average price and set the average price to be exactly $1. Now, with one million transactions the difference would be a quite whopping $155,000.
Source: PayPal press release/Yahoo!
Written by: Petteri Pyyny @ 8 Dec 2003 13:18
