Mark's Musings

A miscellany of thoughts and opinions from an unimportant small town politician and bit-part web developer

Why digital music is still overpriced


If you buy music from iTunes, it currently costs 99c a track in the US or 79p a track in the UK. Is this reasonable? I think not. Here’s why…

According to a report on the Harvard university website, a typical breakdown of costs for a retail music CD sold in the US is:

Retailer: 35%
Distributor: 9%
Record company: 27%
Manufacturer: 13%
Artist(s): 16%

Here in the UK, the breakdown is a bit different – the record companies get more, and the retailers get less. But we’ll stick with the US costs for now, as the US is by far the biggest market and the US cost-base is likely to prevail for future digital sales.

Now let’s compare with digital music. According to Digitalmerging, the breakdown for a $0.99 track on iTunes is:

Label(s): $.55
Apple: $.34
Artist(s): $.10

For the sake of argument, we’ll call these percentages, since $0.99 is close enough to a round $1 for it not to matter too much once we’ve discarded trailing decimals. So what do we see?

Well, Apple gets 34% of income from digital sales. That compares with the standard 35% retail margin, so I think we can allow that Apple isn’t ripping anyone off here, at least not financially. But note that the labels now get a whopping 55%, compared to the 27% they’d get from physical sales, while the artists get a measly 10% instead of 16%.

Now, these figures aren’t necessarily accurate (and read the coments on the blog post that I’ve linked to for some alternative opinions), but it does seem to be the case that the record companies are the ones getting the biggest slice out of digital sales. What seems to have happened is that the costs which, on physical sales, are associated with manufacture and distribution are being grabbed by the record companies when it comes to digital sales. So, rather than getting the benefit of reduced costs associated with digital distribution, the consumer is instead paying to increase record company profits. And this is for a “product” which is far less versatile than a physical CD.

If the record companies took as much from digital sales as from CD sales, then a typical track on iTunes would cost around $0.70. Even that is probably a bit overpriced – I said earlier that Apple’s share isn’t excessive, but they don’t have the same type of costs as a physical retailer so there isn’t necessarily any reason why they should have the same income. In the long term, I would expect a price of around $0.50 per track to be fair and sustainable.