One of the more interesting, and possibly promising, developments in digital music is dynamic pricing. Right now it's the domain of independents. For majors to get involved would require some big changes in how contracts are drawn up and how royalties are calculated.

Billboard ran an article on dynamic pricing (print version only, thanks to reader Eric for sending the article). Part of the article touches upon Amie Street, a download site that uses dynamic pricing. Amie Street will soon sell its 500,000th download.

Here's a blurb about two companies who are rolling out dynamic pricing to a multitude of online services:

"One of the first incarnations of a dynamic pricing model is about the be implemented this month. PassAlong Networks will soon begin selling tracks provided by Nettwerk Music Group for between 29 cents and $1.39 on all 44 of the digital music services using its StoreBlocks platform.

The company is using a pricing engine from Digonex that analyzes a complicated mix of consumer behavior and Internet economics to suggest the optimal cost. Factors include the price of different tracks and albums of the same genre on different services, sales traffic and radio airplay."

Extra credit reading:

• Here's the December 2006 press release about PassAlong's use of Digonex technology.
• From the Harvard Business School's Knowledge @ Wharton, a 2005 article titled "What Consumers -- and Retailers -- Should Know about Dynamic Pricing." "Is this type of pricing, known as dynamic pricing, underhanded or unethical? No, according to faculty members in Wharton's marketing department. They say such pricing -- also called targeted pricing, flexible pricing, tailored pricing or, to use the phrase employed in the Annenberg study, discriminatory pricing -- is customary, an essential tool for companies, and often beneficial to individual customers and society as a whole."
• This 1999 Business Week article pitted Amazon.com and then-upcoming eBay against one another. The winner of the battle between fixed versus dynamic pricing, wrote Robert D. Hof and Linda Himelstein, would set the tone for the future of the Internet.