Downside of downloading

What's the story with downloading music?'When you download music you download communism" went the spoof poster, purporting to be from the Record Industry Association of America (RIAA) back in the last century when the internet was still regarded by many people as little more than a haven for hucksters and pornographers.

Napster and Audiogalaxy had made free audio downloads easy to find and record industry executives and hard rock drummers alike were trying to make sense of this appalling new vista, slapping law suits on anyone they could accuse of copyright theft.

Eventually, Napster was brought to heel and many of the other illegal download sites were shut down. It wasn't until Apple released the iPod that the download business stopped being a complete free-for-all and became, at least in part, a real business. And quite a profitable one too. In the UK alone over €1 billion worth of legally downloaded music is currently occupying space on computer hard drives. Last year almost 80 per cent of the singles - 65 million - sold in the UK were downloaded legally from sites such as iTunes, which has a market share of more than 80 per cent among digital download sites. Downloaded singles were double the number of CD singles sold two years earlier, hardly surprising when you consider the prices.

While a CD single costs in the region of €4 - for which you also get the B-side and other material - often of dubious merit - a song can be downloaded from iTunes for just 99 cent. It is not a lot to pay for a single. The price of a full album downloaded from iTunes is not quite such good value, however, particularly when you consider how little it costs to make the music available.

The CD of Snow Patrol's Eyes Opencurrently tops the CD Wow! chart and has a price tag of €9.99. On iTunes, Eyes Open is selling for the same price even though the costs associated with delivering it to your computer are negligible. There's no shiny CD or plastic packaging to factor in, no sleeve to print and no one has to be employed either to sell it to you or to put it in an envelope and stick it in the post.

So why isn't the cost of an album downloaded much cheaper than one bought in a record store? Conspiracy theorists blame the four major record labels, Universal, Warner, Sony BMG and EMI for keeping the cost of MP3s artificially high in order to generate greater profits and to restrict, for as long as possible, the complete cannibalisation of lucrative CD sales.

Record companies don't just take the blame, they also take the majority of every €9.99 iTunes makes from its album sales. While the percentages vary, a major's cut is estimated to be as high as 85 per cent. This is almost pure profit as all the companies are supplying, generally speaking, is permission. It is the Apples and Napsters that pay to convert the material into digital downloadable files.

And it is the consumer who pays to print the inlay sleeve and burn the CD if they want to create a hard copy of the music, although just 25 per cent of users back up their MP3 to CD.

While production and marketing costs exist, much of each major record label's current catalogue was made before MP3s became available so those costs have already been recouped by CD sales - or vinyl and cassette sales if you include bands from the 1980s and earlier.

Clive Lacey of the Irish Recorded Music Association (IRMA), the umbrella group for the record companies, rejects any suggestion that the majors are ripping people off by inflating the price of album downloads.

"The copyright belongs to the record companies. I don't think the price of downloads is being kept artificially high by them."

Lacey says there is not a cartel in operation in the music business and "the record companies presumably do different deals with iTunes depending on the artist. There is not a flat fee the record companies charge." He says the decision by iTunes to sell all albums for a fee of €9.99 is a marketing decision taken by that company and "has nothing to do with the record companies."

While he accepts that overheads are significantly lower when it comes to selling music downloads, he believes the current pricing structure represents a bargain.

"I think the prices are good value. There is a huge amount of work that goes into putting a band together both from a record company perspective and from the bands themselves. Bearing that in mind, an album for €9.99 is good value. You could get 25 tracks on that. That's only 40 cent a song. No one could dispute that that is good value. You'd hardly get a Chomp bar for that these days," he says.

Generally speaking, it is not the artists who are making the money. Last year Weird Al Yankovic (who, you may be surprised to learn, is still alive and making records) was asked by a fan if he made more money through conventional CD sales or digital sales via iTunes and he responded thus: "I actually do get significantly more money from CD sales, as opposed to downloads. This is the one thing about my renegotiated record contract that never made much sense to me.

"It costs the label nothing for somebody to download an album (no manufacturing costs, shipping, or really any overhead of any kind) and yet the artist (me) winds up making less from it. Go figure."

One country where MP3 prices have tumbled is Russia where, to the consternation of record companies, a controversial site, allofmp3.com, continues to thrive by massively undercutting the mainstream sites. The site is currently selling Eyes Openfor €1.48. It claims that a loophole in Russian law allows it to sell the music legally and ridiculously cheaply. The British Phonographic Institute (BPI) disagrees and is suing.