Why Apple Won't Up-Charge Downloads

As the war of words escalates, BusinessWeek looks at why Apple won't raise prices for donwloading digital songs in the wake of mounting music industry pressure. The industry wants more flexible pricing than the 99 cents a song via iTunes, but so far Steve Jobs and Apple are not budging..

According to research from Ipsos/Insight there is some price elasticity that consumers are willing to bear. Matt Kleinschmit at Ipsos/Insight said, "You could indeed take the price above a dollar with little impact."

Also on the subject of whether higher prices would drive more consumers to piracy as Jobs claims, Ipsos-Insight "surveyed consumers who are experienced at downloading music from both online stores and from free file-sharing services. When confronted with a simulated market environment, 62% favored the free file-sharing services. Take file-sharing off the table, and 44% say they wouldn't bother downloading music at all, while 39% say they prefer iTunes-like pay-per-download services over subscription services."

Of course, Apple is dealing from a position of strength due to the market dominance of its iPod line and continuing to put pressure on competitors with new products like the nano. As Michael Gartenberg at Jupiter Research observed, The iPod drives people to iTunes, not the other way around."