Downloading single songs from Apple's (Nasdaq: AAPL) 
iTunes Music Store will continue to cost less than a dollar -- at least for now -- as four major record labels have agreed to keep existing pricing in place.
Major record labels were said to be pressing hard to win the right to raise prices on iTunes for some of the most popular and newest songs. Apple CEO Steve Jobs had publicly stated that he intended to hold the line on the existing 99 US cents-per-track pricing, saying the roaring success of iTunes proves the price point is just right.
The four companies -- Warner Music, Universal, EMI and Sony BMG -- were hoping to use contract re-negotiations to convince Apple to boost prices on new releases and certain other songs, a move meant to help minimize the cannibalization of compact disc sales.
The fact that Apple prevailed underscores its newfound power in the music business, however. With 80 percent of all download sales occurring through the music store and some 1 billion tracks downloaded worldwide since iTunes went live in 2003, Apple now wields considerable clout.
An Apple spokesperson declined comment, but referred to a company statement saying the agreements had been renewed. "We're pleased to continue offering iTunes customers music at 99 cents per song from a library of over 3 million songs," the statement said.
Time Will Tell
It was not immediately clear how long the new contracts will last. Speculation was that labels may opt for short-term renewals, hoping to revisit the issue in a year or so, possibly when competitors have begun to make a dent in Apple's dominant market share.
Jobs has argued that the 99 cents price tag is what has helped iTunes make a significant dent in illegal file swapping. He said in a recent speech that raising prices would send many users back to peer-to-peer networks and other options for illicit file sharing.
Apple is widely believed to have razor-thin margins on the music store, making money by selling its popular iPod digital music players, the only device ready-made to be compatible with the music store.
For their part, labels recognize the direction music sales are taking. Last year, online music sales grew by nearly 200 percent, according to Nielsen Soundscan, while sales of compact discs fell about 4 percent.
What's Next?
Music labels want the flexibility of variable pricing, which would enable them to charge more for the newest and hottest music and possibly even lower prices for less popular tracks, Forrester Research analyst Ted Schadler said.
Apple prefers the flat pricing because it is easier to manage and to market, Schadler added. "The $1 price point has worked to this point, so their argument might be why tinker with something that's clearly working?"
This week, Napster, which offers a subscription download service, began offering free access for the first five listens of a song.
Meanwhile, the way users buy online music is still expected to further evolve over time, with subscription models seen by many analysts as better for consumers in the long run, though they have had trouble finding traction against the buy-to-own approach of iTunes.
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