PRICING

eMusic's Bold Move

Customers were outraged by a price increase. Did the company learn its lesson?
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THE PROBLEM

When we wrote about eMusic in March 2010, the subscription-based online music retailer was coping with a wave of customer anger over a price increase—as well as charges of selling out for adding titles from music giant Sony to a site once devoted solely to small, independent labels. The company attempted to address the anger by offering perks such as free downloads. But CEO Danny Stein was determined to stay the course; he argued that eMusic's prices were still lower than those of rivals such as iTunes and Amazon and that a larger catalog would draw more subscribers.

WHAT THE EXPERTS SAID

Tim Westergren, founder of Pandora, said Stein's strategy boosted the company's long-term prospects. Sonal Gandhi of Forrester Research said eMusic should have done more to involve customers in the changes. Alan Sorensen, a professor at Stanford, said that although the strategy was sound, the company's PR could have been better.

WHAT'S HAPPENED SINCE

eMusic has continued to expand its catalog, inking deals with more major labels, including Warner Music Group and Universal Music Group. In November, eMusic once again altered its pricing model as it switched from song-download credits to a currency-based system in which most tracks cost 49 cents to 89 cents. Adam Klein, a former EMI executive, joined as president and CEO in August. (Stein remains the company's chairman.) At the same time, however, eMusic informed subscribers that three of its top-selling indie labels -- Domino, Merge, and Beggars Group -- were leaving the site. That prompted a fresh wave of outrage, vented in message-board posts with threats to quit and titles like "Full of Suck."

WHAT'S NEXT

As of December 2010, membership stood at about 400,000, virtually unchanged from a year before -- although Klein expects a bump from the addition of Universal and Warner titles. Subscribers, Klein says, can look forward to new services, including some sort of streaming option. He also denies widespread rumors that the site is for sale. "The investors took a decision to either sell or grow the company," says Klein. "They decided to grow it. I've been brought in to lead a team to build a wonderful customer experience, and we're completely focused on that."

Last updated: Feb 1, 2011

ADAM BLUESTEIN

Adam Bluestein is a frequent contributor to Inc., writing about health care, innovation, and new technology. He lives with his wife and two children in Burlington, Vermont.




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