1. What are the risks that eMusic faces if it raises prices? If it does not raise prices?
2. Should eMusic raise its prices using the new tiered pricing schedule? If so, how should the company communicate the price increase to its customers? Compose an e-mail to existing customers that explains the rationale behind a price increase.
3. What are the risks that eMusic faces if it signs the deal with Sony BMG to expand its online music catalog? If it does not sign the deal with Sony BMG?
4. Should eMusic sign the deal with Sony BMG? Explain.

Danny Stein is considering making some significant changes to his online music retail business, eMusic, the company that he had founded in 1998 and built into the nation’s second largest music download site. eMusic has established itself as the place for music aficionados to discover the latest independent artists, but recently several independent labels, including Drag City and Tzadik, dropped eMusic as a distributor because they complained that the prices it charged were too low and left their artists with royalty payments as low as 15 cents per track. In fact, pricing has been an issue for eMusic for some time. Originally, customers could pay just $9.99 per month for unlimited downloads, but Stein switched to higher monthly rates with limits on the number of downloads. Songs at eMusic still are bargains— about 25 cents each—compared to iTunes and Amazon, where tracks sell for 69 cents to $1.29. Stein wants to avoid other labels dropping eMusic because of low prices and is considering a tiered pricing arrangement that ranges from $11.99 for up to 24 tracks to $35.99 for up to 73 tracks.

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October 12, 2012

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