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Tuesday, February 09, 2010, 08:25 am PT (11:25 am ET)

iTunes price increases mean slower sales for music labels

Since Apple granted music labels the flexibility to set individual song prices between $0.69 and $1.29 on the iTunes Music Store, growth of digital music sales has slowed, one music executive revealed Tuesday.

According to Peter Kafka at MediaMemo, Warner Music Group revealed Tuesday that it has seen digital music sales slow down since the price increase took effect in April 2009. Digital album downloads grew 5 percent in December, down from 10 percent in the September quarter and 11 percent in the June quarter. Digital revenue is slowing as well: Warner saw 8 percent growth in the holiday quarter, versus 20 percent a year before.

Warner CEO Edgar Bronfman Jr. reportedly said the pricing change has been a "net positive" for Warner, but conceded that a 30 percent price increase during a recession was not the best move.

The executive went on to comment during Tuesday's quarterly earnings conference call on the effect Apple and its iPad announcement has had on the publishing industry. Specifically, Apple has offered publishers some flexibility in pricing their e-books, as opposed to the more strict approach the company has taken with music.

"During the earnings call, Bronfman sounded a bit wistful as he noted the book industry’s apparent success, with the help of Apple, at raising prices above the $9.99 floor Amazon (AMZN) had set," Kafka wrote.

Bronfman reportedly said, "It’s interesting that the book publishing industry, on the iPad, has much more flexibility than the music industry had."

Last August, Apple's iTunes was found to be a quarter of all music sales in the U.S. That makes iTunes by far the largest music retailer, ahead of second-place Walmart with 14 percent. In all, digital downloads make up 35 percent of music sales, and iTunes accounts for 69 percent of online sales. But despite iTunes' popularity, CDs still remain the top-selling format, with 65 percent of overall sales.

In early 2009, Apple convinced record labels to remove digital rights management from iTunes music downloads. But in the process, the Cupertino, Calif., company conceded price flexibility. Starting last April, some popular tracks saw a 30 percent increase in price, from 99 cents to $1.29.

But as Apple looks to take on Amazon's Kindle in the e-book business, the company has offered publishers the ability to price new hardcover titles higher — from $12.99 to $14.99 — than Amazon's $9.99 price. Apple's deal influenced publisher Macmillan to push Amazon to allow it to adjust its prices, to which the bookseller reluctantly agreed. Higher prices on the Amazon Kindle are expected to coincide with the launch of Apple's multimedia iPad in late March.

It is Apple's entrance into the e-book market, with its new iBooks application and accompanying iBookstore, that has caused a new rift between publishers and Amazon. Following Macmillan's lead, Hachette Book Group and HarperCollins have both announced their intent to ink new deals with more flexible price structuring with Amazon.

Publishers have said the increased prices will not lead to greater profits, but will protect the viability of the book marketplace by giving authors and agents the ability to make more money on every digital sale. Some have said they believe the current Amazon $9.99 pricing model hurts retailers who sell the hardcover editions by devaluing books.