Music labels seek higher download prices

/ Source: Financial Times

Some leading music labels are in talks with online retailers to raise wholesale prices for digital music downloads, in an attempt to capitalize on burgeoning demand for legal online music.

The moves, which suggest that the labels want a bigger slice in the fledgling market's spoils, has angered Steve Jobs, the Apple Computer chief executive who is behind the popular iTunes online music store.

But music executives expressed caution about their ability to push through unilateral price increases. Among the biggest groups, Universal Music and Sony BMG are known to be particularly reluctant to disrupt the market for downloads. One top label said it would not raise wholesale prices now because the market was not yet mature enough for a price increase.

The three other music labels which also include EMI and Warner refused to comment.

Analysts, meanwhile, are warning that price rises could exacerbate Internet piracy, which is thought to cost the industry about $2.4 billion a year.

Music industry executives said introductory wholesale prices for digital tracks had been set low to stimulate demand for online music sales but the success of Apple's music store had prompted concern that they may now be too low. The effort suggests several labels believe demand for online music is robust enough to withstand higher prices, despite the fact that online sales are estimated to account for about 2 percent of total music sales.

Michael McGuire, analyst at Gartner, said the move could backfire because consumers who buy music over the internet have become accustomed to paying 99 cents or less to download tracks.

Wholesale prices are thought to be about 65 cents. "It seems to me to be singularly bad timing," he said, adding that a price increase now could send music fans back to underground peer-to-peer services where they could get illegal music tracks for free. The number of illegally downloaded tracks still far outstrips legal online sales, despite an aggressive industry campaign to sue people who illegally share music.

The efforts to raise prices appear in part to reflect frustration over Apple's wildly successful music strategy. Its online store has sold more than 200 million songs and accounts for about 65 per cent of all legal downloads.

These sales have been instrumental in turning the company's iPod digital music player into the world's hottest consumer product. "Our music is not something to be given away to sell iPods," said one industry insider.

Many in the music business also expressed concern over Apple's growing clout. This stems from the fact that Apple's music store and player are not compatible with any others. One fear is that Apple will become too powerful if consumers continue to choose its digital music platform. Apple declined to comment.

It was not immediately clear by how much the labels hope to raise prices but one executive said rates for mobile phone ringtones are roughly 10-15 per cent higher than digital downloads.

Others said the labels wanted to introduce variable pricing for downloads so they could charge higher wholesale prices for top hits and other special tracks.