Record
companies are taking such a large cut from tracks sold online that many of the
burgeoning online music stores will go out of business, experts warned
yesterday.
Figures
obtained by The Independent show
that the labels take home the lion's share of the cost of a digital download -
making more money per track than they do with CDs in shops.
Online
stores such as Apple's iTunes were seen as a revolution in music sales, with
customers turning their backs on CDs to shop online. Many also believed that
the stores would drive down the cost of online tracks.
But
figures from the US show that Apple Computer, the dominant legal download
business in Europe and the US, retains just 4 cents from each 99-cent (55p)
track sale while "mechanical copyright" holders - generally the
record labels, who own copyright in the song's recording - take 62 cents or
more. Music publishers take the rest - about 8 cents.
With the
sites, the copyright owners have doubled their share of royalties, even though
the marginal cost of manufacturing has fallen to almost zero.
The
revelation will embarrass industry executives, who meet this week in
The
figures also cast doubt on the viability of the dozens of companies storming
into the market - recent arrivals include the high street store Woolworths, and
Stelios Haji-Ioannou, founder of easyJet.
Apple has
the advantage that only tracks sold from its iTunes Music Store play on its
profitable iPod digital music player, of which the company has sold 1.6 million
this year. Songs from other commercial download sites cannot be played on the
iPod. Apple declined to comment on the figures. It has said its prices depend
on each country.
Legal
download sites thus herald a quiet coup for the record companies, which had
seemed threatened by the explosion in illicit file-sharing and falling CD
sales. Online stores have also been criticised for offering less than physical
CDs: the sound is lower quality, and the digital tracks contain encoded
restrictions on copying to other PCs or handheld music players, and on "burning"
the music to CDs for personal use.
But
despite the lack of profits, more and more companies are joining the
Tom
Dunmore, editor of the new online music magazine Rip & Burn, forecast that at current licensing prices,
many more legal download sites will launch in the next 12 months - and then
quietly disappear within five years.
Phil
Evans, a spokesman for the Consumers Association, said the data suggested
record labels would have to change - or strangle the nascent market. He said:
"Unless the record labels look at new [distribution] models, they're
bringing about their own demise."Michael Robertson, the founder of
MP3.com, is blunter. He says commercial downloading is so unprofitable it is
"a race where the winner gets shot in the head".