Steve Jobs Gets It

“If they want to raise the prices it just means they’re getting a little greedy.”

Over the last five years, I’ve watched the dramatic rise of Napster, Grokster, Limewire and other peer-to-peer networks that have made music piracy as simple as clicking a button. And despite feeling the urge to satisfy my insatiable appetite for new music, I’ve resisted the temptations of stealing music. I think it’s bad for musicians and bad for the business.

That being said, the greed of the record companies is just appalling. I started buying CDs 20 years ago, and prices are still around $15 for a new CD. That’s ridiculous, given the economies of scale associated with CD production and that sales continue to drop, especially among the largest audience, teens and young adults.

If record companies lowered the price of CDs to $5-10, their sales would pick up again. It’s easy to illegally download a record and burn it to a CD-R, but it’s not entirely free. It takes time and a little money. If CDs were cheaper, more consumers would buy them, if only to save themselves some effort, and to own a guaranteed high quality recording with compelling packaging.

Now that Apple’s iTunes store has made downloading music legitimate, the record companies want to do the very thing that will push more people into piracy — raise prices.

Thankfully, Steve Jobs has some say in the matter.

Apple’s co-founder and CEO said record companies already earn more profit from songs sold through iTunes — cutting out costs of manufacturing, marketing and returns — than from those sold on CD.

“So if they want to raise the prices it just means they’re getting a little greedy,” he said.

“We’re trying to compete with piracy, we’re trying to pull people away from piracy and say, ‘You can buy these songs legally for a fair price,'” he added.

“But if the price goes up a lot, they’ll go back to piracy. Then everybody loses.”

Industry analyst Philip Leigh, who runs U.S. market research firm Inside Digital Media, said record companies were smarting over their loss of control as online customers cherry-pick favorite hits.

“A full CD might have only three or four popular songs,” Leigh said. “Now that the consumer’s able to buy each song individually, they don’t have to buy the whole CD, and the labels are concerned that this will result in lower revenues.”

But as long as Apple controls the market for music players and paid-for downloads, Leigh said, “it’s going to be very difficult for the labels to avoid dealing with Steve Jobs on his terms.”

Apple’s iTunes accounts for 82 percent of legal downloads in the United States. The company has sold more than 500 million songs online and about 22 million iPod digital music players.

Ted Schadler of Cambridge, Mass.-based Forrester Research said studies showed consumers would pay more for the most popular tracks. But he agreed with Jobs that any move to raise prices could backfire.

Among Internet users ages 12 to 21, Schadler said, about 50 percent share tracks illegally, while just 6 percent buy online and don’t share.

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