updated 08:30 am EDT, Mon April 3, 2006
Apple vs. music labels
Apple and the music labels are still divided over digital music pricing, pending upcoming negotiations over iTunes pricing later this year. A new report suggests that the lablels could pull their entire catalog from iTunes, if Apple CEO Steve Jobs takes the hard line on its one-price, $0.99 flat-fee for songs. The major music labels want to raise prices on popular songs and cut prices on less popular ones -- to match the pricing of CDs, although Jobs, who called the labels greedy last September, argues they already make more on sales of digital songs and any price increase could push consumers back toward piracy, although the labels deny such a charge. "After you cross that 99-cent psychological line with consumers, you're going to hurt sales," said Wayne Rosso, who headed the now-defunct Grokster file-swapping service and is currently working on a new service licensed by recording labels to sell downloads.
The spat over pricing has been waged in the public with music executives pushing for multi-tier pricing: "The market ought to be able to decide, not a single retailer,'' Warner Music's Bronfman, 50, said in September at a Goldman Sachs Group Inc. conference in New York.
The record labels were hit with a federal class-action lawsuit accusing major record labels of fixing prices for internet music downloads as well as CDs. In addition, digital music price fixing is already being investigated by New York Attorney General Eliot Spitzer and the U.S. Department of Justice; however, Apple's dominating position in the digital market -- with roughly 80 percent marketshare -- skews the balance of power toward Apple.
"The power balance at this point is probably still going to be on the side of Steve Jobs and Apple," Kleinschmit said. "Can the record labels really afford to pull their catalog from iTunes?"
The report says that labels could respond by threatening to cut back the special promotional exclusives that now help drive traffic to iTunes, offering them instead to other online retailers or to wireless carriers that typically sell a song download for more than $2.