iTunes and greedy music industry 99 cent downloads
The US attorney general, Alberto Gonzales, has launched a wide-ranging investigation into allegations that record labels are fixing the prices of music downloads.
The Guardian, US opens inquiry into pricing of music downloads
The department of justice inquiry centres on the activities of the four largest record labels: EMI, Sony BMG, Universal and Warner Music. Subpoenas are believed to have been issued to all parties, with federal officials understood to be focusing on whether the companies have been colluding to keep the price of downloads artificially high. Tracks from the major labels are sold wholesale for around 80 cents each. The prices online stores then market tracks varies, but in the case of Apple's iTunes Music Store, which dominates the industry with about 80% of sales, tracks can be picked up for 99 cents.
Many attribute the recent success of the download industry to Apple, which has tied its online shop to the iPod music player, which has sold more than 42m units worldwide. Last month the iTunes Music Store achieved the landmark of 1bn songs sold. Apple's chief executive, Steve Jobs, has accused major labels of being greedy, and indicated that they have attempted to force an increase in the price of some downloads.
"Music companies make more money when they sell a song on iTunes than when they sell a CD," Mr Jobs said last year. "If they want to raise prices, it's because they're greedy. If the price goes up, people turn back to piracy - and everybody loses."
When I started in the pre-paid phonecard business in 1994, AT&T was selling calls to China from the US for $2.50 per minute. My company charged 1.25, just a little over the wholesale price. Today, we charge less than 2 cents a minute to call China. And despite the very low prices, the Chinese telecoms make more money now than they ever did when they artificially kept prices high. At 2.50 a minute, a Chinese worker in America making 5 bucks an hour would spend $5.00 per month calling back home and many would call less frequently. At 2 cents a minute the same worker spends about $20.00 a month while many others who never called at all do not mind talking all day now. It doesn't cost China anymore to let people talk for 2.50 than 2 cents a minute. There is no one on the other end holding up a cup with a string; it's all automated.
It doesn't cost record labels anything to let iTunes ® do all the work yet they price songs as if someone is actually pressing it onto an individual vinyl 45 rpm record. Downloaded songs should sell for 19 or 29 cents max - with a corresponding wholesale of 15 or 25 cents. After all, they don't have to manufacture, inventory, ship, or invoice any product. So why charge as if they do?
They say they're losing CD sales. Screw CD Sales. Close down the manufacturing plants, sell off the warehouses for inventory, padlock the shipping, accounting, marketing, sales, and payroll departments and just make deals for music. Let iTunes and Yahoo Music do the promoting, sales and marketing of the songs.
I'm certain once they become smart business people like me they'll do the right thing. If they don't they'll disappear. Oh yeah - AT&T no longer competes against companies like mine - they effectively went out of business. They couldn't adapt. Some other dinosaur out west bought their name. But they too will eventually disappear.
