The End of the 99-Cent Download? Why Major Labels Are Squeezing Online Retailers to Raise the Price of Digital Music

12 CHICAGO READER | JANUARY 20, 2006 | SECTION ONE

The End of the 99-Cent Download? Why major labels are squeezing online retailers to raise the price of digital music.

By Douglas Wolk ast year Americans bought it’s made deals the standard higher than it is for new ones). music files for almost three you to get it instantly, without 325.7 million songs as wholesale price for mobile- But in the long run, labels have years, its contracts with major the hassle of driving to the L digital downloads, accord- phone downloads, which is to prefer a format that can’t be labels are reportedly up for store or waiting for Amazon to ing to Nielsen SoundScan—a around $1.25 per song. “Right passed along without bringing renewal, and the word is that deliver your package. major leap from the 2004 fig- now, Apple has set the market,” them income. Sony, Warner, and EMI Group That’s one kind of conven- ure of 140.9 million. What was Amp’d chief executive Peter Wading into this swamp is don’t like the 99-cent rate; ience. Another is reflected in each of those songs worth? The Adderton told Forbes. New York State attorney gener- they want prices to be higher the fact that digital sales are easy answer is 99 cents, the To compound the confusion, al Eliot Spitzer, who’s been for new hits by big-name artists more often individual songs standard price at the iTunes consider the two very big differ- investigating the music busi- and maybe lower for older, less than complete albums; now Music Store, and the price ences that record labels see ness for a while—last summer in-demand tracks, to keep up that most hits are no longer from which cheaper rates he extracted $10 million and their sales volume. In available as physical singles, seem to be discounted: Wal- an agreement to stop exchang- September Jobs accused labels buying a single track is often an Mart charges 88 cents, Yahoo! ing money and gifts for radio that wanted iTunes to raise online-only option and hence Music Unlimited charges 79 airplay from Sony BMG, and prices of “getting a little potentially worth charging a cents, and indie-music site followed that up by prying greedy”; it’s unclear why he’s premium for. If the cost of “any eMusic (which I write for) another $5 million out of more willing to bend on the one song’s worth of bytes, right sells monthly packages of 40 between selling physical CDs Warner Music Group in album rate than the song rate, now” is understood to be 99 MP3s for about $10. and digital downloads. First, November. Shortly before though he’s argued in the past cents, then “‘My Humps,’ right But even iTunes’ prices aren’t there’s basically no financial Christmas Spitzer subpoenaed that a stable per-song rate is now” for $1.79 sounds like a rip- quite consistent. Download an risk in selling sound files all four major labels as part of more comprehensible (and off. But it depends on how cus- album with more than ten beyond recording and promo- an investigation into possible palatable) to consumers. tomers frame what they’re buy- songs from there, and it’s tion costs that have nothing to price-fixing in digital music. The argument for variable- ing. “‘My Humps,’ without hav- $9.99—unless it isn’t. Apple has do with the format of the prod- Reports last week said he was rate pricing on music down- ing to spring for the whole been experimentally pricing uct. CDs have significant manu- studying labels’ contracts with loads rests on the idea that Black Eyed Peas album” might some albums a bit higher—or facturing and distribution digital music services, specifi- what the people are paying be a bargain at $1.79. lower. The All-American costs; they need to be pressed cally “most-favored nation” for—the thing that, perhaps, It’s not a great moment for Rejects’ self-titled 11-song and printed and assembled and the music business in general. debut album, from 2003, is warehoused and shipped and The argument for variable-rate pricing CD sales are down around $5.99; during the holiday rush, shelved, and if they don’t sell, eight percent from 2004, and when Eminem’s Curtain Call stores can return them for cred- rests on the idea that what the people new releases have been doing was the only album of the it. With downloads, the “manu- particularly poorly. Everybody’s fourth quarter of 2005 to be facturing” cost is an insignifi- are paying for is the music itself. But got their own explanation for number one on the Billboard cant bandwidth fee; the buyer that: labels have their all-pur- chart for two consecutive clicks on a button and boom, arguably a significant part of what pose excuse of piracy, while weeks, it was $14.99—pricier there’s the label’s money, and they’re buying is convenience. record stores blame what than at some conventional nobody ever has to eat an Coalition of Independent retailers. unsold copy. clauses that guarantee each depreciates over time—is the Music Stores president Don Those are just the prices to The second difference is that label the same payment rate as music itself. But that doesn’t VanCleave called “an absolute, buy songs for your computer. If while physical CDs can be its competitors. (Spitzer’s office, seem entirely true; arguably a gigantic cesspool of really bad you want to download music resold, and often are, you can’t which generally doesn’t com- significant part of what they’re bands” in a Wall Street Journal onto your mobile phone too, it even transfer a protected ment on ongoing investigations, buying is convenience. If it article. So it’s understandable might cost more—Sprint iTunes or mobile-phone sound did not return calls.) costs a few dollars more to that labels are looking to Nextel, for instance, sells full- file, let alone sell it. Would any- Price-fixing is a tricky thing buy an Eminem album as a set squeeze some more money out song downloads for $2.50 a one dream of charging money to prove—Spitzer would have of protected, nontransferable of digital music, the rare seg- pop—or it might not. A new for a “used” MP3? Record to demonstrate that major files with no artwork and no ment of their business that’s wireless carrier called Amp’d— labels backed off a short-lived labels colluded to set prices. liner notes from iTunes than it enjoying some growth. In a few it markets to the Punk’d set, anti-used-CD crusade in the On the surface, at least, it looks does to go to a record store months we’ll probably know if hence the terrible name—sells early 90s, once a lot of conven- like exactly the opposite hap- and buy a higher-fidelity physi- the value of a hit, plus the value songs to its subscribers for the tional record stores made it pened with iTunes: Apple CEO cal copy that you can sell later of convenience, adds up to more magic 99-cent figure, but as a clear that used bins were keep- Steve Jobs picked a price and if you don’t like it, are you than a dollar, or if three years loss leader. Amp’d pays the ing them alive (since the profit dictated it to the labels. Now crazy to go for the iTunes ver- of iTunes have solidly estab- three major labels with which margin on used CDs is so much that Apple has been selling sion? Not if it’s worth it to lished the market rate. v CHICAGO READER | JANUARY 20, 2006 | SECTION ONE 13