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Ask an accountant or economist to define the value of an iPod Shuffle, or what it’s worth, and you might get a few dissertations in reply.  Ask what it costs? That’s a little easier to peg.

Market research firm, iSuppli, has done a teardown of the device and estimates the diminutive MP3 player is made from a minuscule $21.77 in parts.

Business Week reports in its summary that nearly half of that comes from two Samsung parts: the controller chip and flash memory.

The price is purely hardware, and it is merely an estimate. It doesn’t include development costs or sales and marketing expenses but even so, it suggests the gross margin on the player should Click to Read More

As announced in January, and forecast a little more than a week ago, Apple officially made the switch from 99 cent songs to tiered pricing on iTunes today.  

For the better part of six years, Apple’s had resisted record label pressure to make the shift.  Steve Jobs argued the pricing needed to be “fair” to offset the temptation of downloading a pirated song.  Raising prices too high, he said, would drive customers away.  99 cents was simple, and sufficient.

Apple backtracked and conceded in a Macworld announcement, but only after the record companies agreed to remove Digital Rights Management restrictions (DRM) from the music in the catalog, and to allow Apple to sell songs wirelessly over 3G in exchange.

Under the new arrangement, the music store is now entirely composed of DRM-Free, 256kbps songs priced at 69¢, 99¢, and $1.29.  (Upgrading previously purchased songs to the higher bit rate, and encryption free format can be done for 30¢ a track).

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Legend has it, the great blues musician Robert Johnson went down to a crossroads and made a deal with the devil.  In exchange for unfounded musical talent, the story says, he traded his soul.   It was a yes or no choice; be a guitar hero, or not.   He chose the immortality of his music.

The music industry is hardly so fantastic but like the legend, the thin line between the industry’s successes and failures, or evolution and regression, seems to hinge on the big decisions made when the road of progress forks.

Looking at the music business over the last decade, as its struggled to evolve to the changing digital landscape, two pivotal moments jump out.  The first was the evolution of file sharing networks and how the music industry chose to handle them.   The second was the advent of Digital Rights Management (DRM) encryption and how the music industry steered its early use.

Now, it’s starting to look like the industry is reaching a third crossroads: license fee rates for streaming services .

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The recording industry has had a love affair with the idea of variably priced music for years.  As a tool, it’s a way to manage supply or even manipulate demand. If an album (or single)  isn’t selling or there’s excess inventory, for example,  the price can be trimmed and the bargain used as a lure.  If sales are good, or an album is starting to climb a key ratings chart, price adjustments can tweak the momentum.  

The practices are common but in the digital world, some retailers have fought against it.  For the better part of six years, Apple’s resisted its use at iTunes but that’s changing.

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Advertising is sometimes seen as the great subsidizer, the mighty and powerful Oz that can pay for all kinds of Internet media.  But Oz couldn’t give the Scarecrow a brain and advertising can’t give all Internet content businesses a good looking income statement.  Free (ad-supported) online radio stations are a case in point.  As the sites grow in audience scale, the license fees behind the music they stream grows too.  Pennies (or even fractions thereof) per song play adds up fast when millions of users are lounging in the soundscape.  Paying that expense with ad income can be a difficult calculus when ad markets are trim.

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When Guy Hands stepped out of the CEO role and become Chief Investment Officer at Terra Firma last week, the private equity firm characterized the move as an operational decision that would allow Hands to get more involved with existing portfolio companies and new investments.   He’s apparently not wasting any time. 

It was revealed today, Douglas Merrill will step down from his roles overseeing the digital business at the Terra Firma owned record label, EMI.

According to an internal EMI memo snagged by All Things D, the former Google Chief Information Officer’s departure was a consequence of reorganization.

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For seven years, since the inception of the firm (via a spinoff), Guy Hands has been Terra Firma’s outspoken leader.  Today, in a surprise announcement the fund founder ceded day to day control of the large European private equity firm. General Counsel Tim Pryce will become CEO and Hands will take the dual title of Group Chairman and Chief Investment Officer.

Terra Firma characterized the move as an operational decision necessitated by the growth of the company.  Since, 2002, staff numbers have nearly doubled and the company’s assets under management have swelled from €2 billion to more than €11 billion.

The company currently has more than 200 investor relationships spread across twenty six countries.

As Group Chairman and Chief Investment Officer Hands will be better positioned to focus on the company’s investments, investors and strategic development, the company says.

That perspective corresponds with a letter earlier this month in which Hands said the firm was “cautiously optimistic” about investment prospects for the coming year and that the deals it is “currently seeing are classic Terra Firma opportunities.”

At the same time, however, the reorganization also seems to be a conciliatory gesture  aimed at appeasing investors who have been concerned over both Terra Firma’s ownership of record label EMI and the €1.39 b loss Terra Forma posted for 2008, largely a result of that investment. 

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