UP THE DOWNLOAD

A recent Wall Street Journal report contending that the majors want to boost the price of digital downloads (and already have, in the case of some high-profile albums) is sparking strong reaction.

Since the biz seems to believe that consumer interest in purchasing tracks online is growing stronger—at least at Apple’s iTunes Music Store—some execs now apparently hope to ratchet the per-song price from its current standard of 99 cents to somewhere between $1.25 and $2.99.

Of course, the increases would likely apply to top-selling music, while other music could well be priced lower—a “tiered” approach that could spur impulse buys of less familiar material.

But even so, is this more than the market can bear? Many music folks feel that content providers should be careful to nourish an emerging industry that is still up against massive unauthorized swapping.

“They’re obviously struggling to balance single and album sales online,” notes industry consultant and business commentator Hilary Rosen, who presided over the RIAA when downloading first got the biz’s attention. “But I’m not sure that going out there with $1.29 singles in a vacuum isn’t leading with your chin.”

“The price should be as low as possible to compete with free,” insists ubermanager Jim Guerinot (No Doubt, Offspring, Nine Inch Nails). “Once you have critical mass, you can begin the slow increase process. DVD prices dropped and the market exploded.”

Yet some see potential for a far larger business if the pricing model is allowed to be more flexible. Derek Sivers, founder and CEO of the influential online indie record store CD Baby, feels that 99 cents is a reasonable price for now. “Someday, when the whole process is streamlined even further,” he adds, the unit price could drop to 50 cents. “Once the industry adjusts to using less plastic and fewer trucks to get music into people's ears, there will be plenty of profit at 50 cents per song and $5 per album.”

Many observers assert that paid downloads on iTunes are mostly a loss leader used to sell iPods—in much the same way that big-box electronics chains use low CD prices to lure in potential hardware buyers. Indeed, the iPod has now passed the Macintosh as Apple's biggest-selling product and is credited with boosting Apple revenue during the first three months of 2004 (the firm's fiscal Q2) by 29% over the same period last year.

But most of Apple’s competitors in the space don’t have a lucrative portable device. How would a big bump on per-track fees affect these businesses, many of them struggling for survival?

And are the majors indeed using higher download prices to protect CD sales? So claim anti-label activists, copyright “maximalists,” P2P companies and others.

For more on these and similar questions, watch this space.