Labels Screw Online Punters

Music lovers are being forced to pay high prices for downloading songs from the internet by record companies keen to protect sales of conventional CDs, according to industry experts.

Analysts claim big record labels are making up to 65% more revenue on digital downloads than on CDs — despite an apparent reduction in manufacturing and distribution costs that should bring down prices for online music.

The policy of “strategic pricing” means it can sometimes cost more to download an album than to buy it in the shops, where CD prices have fallen to an average of about £9.

Critics believe the phenomenon is prompting disgruntled music buyers to turn to illegal websites where they risk prosecution for obtaining songs at substantially discounted prices.

While Apple’s market-leading iTunes Music Store sells individual tracks for 79p, people using the Russian-based AllofMP3.com website, the second most popular download site in Britain, can purchase entire albums for £1.

Last week the British Phonographic Industry (BPI), which represents the record companies, claimed that AllofMP3. com was operating illegally and said it will be suing its owners.

In America the Department of Justice has launched an investigation into claims of price-fixing over downloads by leading labels.

Last week MPs on the Commons culture, media and sport select committee asked BPI executives to justify the high cost of internet downloads.

In 2005, 40m tracks were legally bought online in the UK. Although this accounts for only about 2% of overall music sales, the figure is forecast to rise to 15% by 2011, representing a market value of more than £300m.

“The music industry is still at the stage where they don’t want to make everyone suddenly switch to digital yet,” said Mark Mulligan, vice-president of Jupiter Research, a leading analyst in the new media sector.

“They want to let the model evolve slowly and work out what the best model is to protect their bread and butter — the CD.” The high price of digital downloads is part of this strategy and not based on the costs, Mulligan says.

Having questioned online music retailers on a confidential basis, Mulligan believes that about two-thirds of the revenue generated by a download sale goes to record companies. Other analysts concur with a similar figure.

By contrast, companies which license the use of music on behalf of songwriters, composers and music publishers estimate that record companies receive 46% of the revenue generated by sales of CDs. Other analysts believe the figure is closer to 40%.

This means that record companies have increased their revenue on downloaded music over an equivalent CD sale by as much as 65%. At the same time, selling music through the internet does away with the need to manufacture and package CDs and transport them to retail outlets.

While the record companies claim that this cost saving is marginal, Simon Dyson, an analyst at Informa Telecoms & Media, estimates that it accounts for at least 20% of the overall cost of a CD. “When you strip out all the different parts, the record company is making more and it’s more profitable,” said Dyson.

Story source: timesonline.co.uk.