$3.99.

That’s my perfect price for a full-album download. It’s unscientific, of course, and depending on the circumstances I might be willing to pay as much as 4.99 or 5.99, but that’s the edge of what I think your average 12-song record is worth nowadays, free of its packaging, liner notes and disc media.

That’s just my opinion. For many people, the correct price of digital downloads is simply FREE. They are unwilling and unable to buy digital music. In a perfect world (for the record companies) the market wouldn’t have to account to these “freetards”. But for years, it’s been the record companies who are fundamentally wrong about the economics of music. They figured that because they control the legal supply of music, they control the actual supply of music. After years of failing to sue the p2p filesharers out of existence, they’re finally starting to realize that the actual supply of music, especially popular music, is virtually unlimited. If something costs nothing to reproduce and is available to people everywhere if they expend minimum effort and resources, that something must be priced very close to FREE.

And so music is like water.

But, as with water, people are willing to spend some money on digital music if they can:

• ensure its quality (i.e., reasonable bit-rate and file quality; with no sound defects)
• guarantee the source (free of viruses; ripped from the original rather than a lossy file conversion or low-quality digital stream)
• get it quickly, avoiding lengthy wait times or pesky obstacles
• obtain distinct-tasting varieties that are not widely available from the common and usual sources

It was for these reasons that, in August 2001, I decided to sign up for Emusic. At the time, the company offered a healthy menu of independent labels at all-you-can download price of $9.99 per month. Sure, the price was higher than the defunct Napster had been. And one could still get free downloads through Audiogalaxy and Kazaa and Grokster. But with FREE, you were never quite sure what you were getting. Emusic offered a consistently high-quality product, that included a lot of niche music not easily obtainable via illicit means. It has been awesome.

Over the years, Emusic gradually increased their prices as they added subscribers and additional independent labels. Each time they’ve raised prices, it’s caused a lot of commotion, but rarely have they raised prices without adding more music choices and becoming a better deal. Indeed, they’ve done nothing but grow their subscriber base, and price increases have yet to slow them down. I put together the following history that gives you some background at a glance (clicky for full screen).

A History of eMusic

It’s against this backdrop that the company announced this week their most recent pricing change:

The company announced a deal Monday with major label Sony to add catalog tracks–that is, music released more than two years ago–from Sony artists. But eMusic barely mentioned the fact that it’s raising prices at the same time. Specifically:

The lowest-priced Basic subscription ($11.99) now offers only 24 tracks per month (50 cents per track) instead of 30 (40 cents per track). Existing customers will be grandfathered into the old 30-song allotment, according to an eMusic spokesperson cited by the Los Angeles Times.

The mid-tier Plus subscription goes from $14.99 to $15.89 and offers only 35 tracks (45 cents per track) instead of 50 (30 cents per track).

The high-end Premium subscription goes from $19.99 to $20.79 per month and offers only 50 tracks (42 cents per track) instead of 75 (27 cents per track).

Some subscribers will see even greater increases because they were grandfathered and insulated from the last round of increases in 2006. I am one of those subscribers. I’ve been getting 90 downloads a month for $19.99 or 22 cents per track. Now I’ll get 50 downloads for the same price, an increase of 18 cents per track. That’s a price hike of almost 82%. Emusic has softened the blow by promising users free download packages of 15 or 25 downloads. They’ve also announced that albums with more than 12 tracks will only be counted as 12 downloads, which will provide some parity with iTunes and Amazon who cap most album prices at $8.99 or $9.99, even when there are more than 10 tracks.

Still, this has created a shit-storm of controversy. The most common complaint I’ve seen is the bad-timing argument, which criticizes Emusic for raising prices at the same time they’re adding a major label, which most of Emusic’s indie-loving customers neither want nor need. My pal and former Houston music blogger, Ryan Clark, summed up this line of argument best in an open letter to Emusic:

I am disappointed. The Sony deal highlights a rather serious disconnect between eMusic’s management and its user base. I have valued eMusic tremendously for the ability to explore rather aggressively the breadth and depth of song that I did not know was out there. Be it rock from the underground, blues from the delta or funk from Nigeria, the one thing I never found eMusic was lacking in is options and opportunities to explore. This was made possible by the high number of downloads and the truly unique charts, full of compositions and compilations I had never even heard of before (and that you can’t really find anywhere else).

I never thought that eMusic needed a stronger mainstream back catalog. It never crossed my mind. Now the complete orientation of the site is changing. And so will my approach.

I expect nearly static charts, across the many genres. Can anyone imagine a time when Thriller won’t be #1? How will this great tool, a clear differentiator, be of any value to me now? And cutting the number of downloads so significantly for the same price I was paying yesterday can’t be made up for by the fact that I’ll be able to download a Justin Timberlake record that was a hit two years ago. How will I decide which two albums not to download this month? What new sonic experiences will be denied me so that I have the opportunity of binging out on Hall and Oates? Was the addition of this catalog, with these consequences, really in the best interest of your customers?

Unlike most folks who have spoken out, I don’t mind the addition of Sony’s considerable back catalog, but I am dismayed about the aforementioned 82% price hike. The question I’ve been asking myself is: should I be pissed about this? Maybe not. I’ve been getting a pretty great deal compared to Emusic subscribers who joined in 2007-08, not to mention the regular prices on Amazon and iTunes are still 89 to 99 cents per track. At 40 cents per download, Emusic remains a pretty good deal, right?

But I do think it’s weird that Emusic is raising prices at the precise moment when their competitors seem to be tilting towards lower prices and DRM-free music. Consider the example of current music blog darlings Passion Pit. When their highly anticipated debut album was released May 19th, it was priced at $3.99 on Lala.com and $2.99 on Amazon. In other words, Amazon was pricing the record more cheaply than Emusic, even under their old pricing plans. Obviously that was a sale price (it’s ballooned back up to $7.49 and $8.99 respectively). But lower prices are becoming more common. Amazon is running a 50-albums-for-$5-each special in June, and Lala’s hot deals page features new releases from bands like Animal Collective and Yeah Yeah Yeahs for $3.99 each.

Other music retailers besides Emusic are starting to realize that lower prices for high quality, DRM-free downloads could entice more buyers—including people used to stealing their music. In fact, Emusic is the one that’s starting to look like the dinosaur. It’s remained flat-footed as both Lala and Amie Street have added sophisticated social features and Web players that allow users to access their music libraries from anywhere.

So, does that mean Emusic won’t have the lowest price anymore? Have they made themselves totally irrelevant? No, that’s the thing. In most cases, Emusic is still going to have the lowest price. For the sake of comparison, let’s look at a record that’s on every major service right now, one that’s old enough to not be on sale: Yo La Tengo’s 1993 classic, Painful. Under my old plan it would have been about $2.42, well below my ideal price of $3.99. Now, none of the retailers are getting that low:

If you look at the recent feedback Emusic has received here (1095 comments!) and here (another 181 angry people), you’d think Emusic might well have jumped the shark. A whole lot of people, including me, are considering an ending their Emusic relationship. The results will probably less dire. Emusic is still about the best deal you can get on digital music short of stealing it. But they’re getting pressure from both sides of the supply and demand curve now. Higher priced competitors are starting to inch closer to my magical $3.99 price point (or 33 cents per track). In going above that line, Emusic is, by their own admission, sticking it to some of their most loyal customers. Oh, and don’t forget the terrible economy, in which people are tempted more than ever to get their music for free.

In a land of thirsty digerati wandering the web, water out of the tap is always a decent option.