99 Cent Downloads Will Stay if Jobs Has His Way

Apple (Nasdaq: AAPL) chief Steve Jobs took a pointed shot at record labels, calling them "greedy" and vowing to hold steady on 99 cent downloads despite pressure to bump up prices. Jobs, speaking before the opening of the Apple Expo in Paris, said he believes higher prices will drive music consumers back to piracy.

One analyst said that prices are already artificially raised because of fees iTunes and other downloading services must pay to the recording industry.

Prices Already Inflated

"Currently, I would argue that prices for digital downloads are already too high because of the fees demanded by record labels," Mark Mulligan, research director at Jupiter Media, told MacNewsWorld in an email. "Digital downloads are an inherently inferior product to a CD -- no artwork, no physical product, etc. -- so the cost of a digital download album should be significantly lower than a CD, not just marginally, as is currently the case when compared to Amazon."

Mulligan said he didn't believe file-sharing would increase with prices, but would have other consequences.

"Increasing prices is unlikely to drive many buyers back to file-sharing, as current digital buyers are largely early adopter music aficionados who are willing to pay for music anyway," he said. "However, raising prices is likely to hinder growth and inhibit adoption among new customers, who will see little incentive for buying digitally versus buying a CD or downloading for free."

Four record labels -- EMI Group, Sony BMG Music Entertainment, Vivendi's Universal Music and Warner Music -- sell 75 percent of the albums on the market. With their contracts with iTunes coming up for renewal, they are trying to decide whether to move to a pricing model in which new releases and songs recorded exclusively for iTunes sell for a higher price.

False Argument

The companies argue that revenue is down partly because of piracy and partly because of the switch to new technology, but Mulligan said the argument is spurious.

"Record labels are making money off downloads if you look at it as a pure equation of revenues as percent of retail price," Mulligan said. "However, one of the arguments used by record labels is that they have had to invest heavily in digital, both through their own services and via digitizing their catalog. The former should not be factored into the equation any more than the cost of setting up a label record club should be factored into CD prices. The second is a fixed cost that should be accepted as a fixed cost of entering the digital age."

The industry might do well to heed Jobs' warnings for another reason: Legal downloads still lag far behind illegal file-sharing.

"Digital download sales are increasing at a very strong rate, but from a relatively small base," he said. "[Meanwhile], illegal file-sharing is also growing, though modestly, from a much higher base, so the balance of power is still explicitly with the illegal networks."