In this graph, total prices are based on a quick survey of items for sale. I haven’t included units or exact figures because different stores, labels and territories offer slightly different deals, and the goal here is to give you an idea of the general picture, not to give the illusion of an exact or universal formula. The splits are based on my experience* of typical indie classical deals, where a digital retailer gets to keep 30% of the retail price, and a digital distributor takes 10%-20% of what’s left. Labels generally set minimum wholesale prices and maximum markups which, in real terms, means they also control the retail price. There’s a lot of variation in both the distribution and retail markup for physical CDs, so I’ve gone for something typical of a medium-sized classical indie dealing with a big distributor and a big retailer, since this is where the majority of sales happen. The slice of revenue passed on to artists is entirely dependent on their deal with the label, and since this varies from “all of it” to “none of it” I haven’t tried to include it on this graph. It is, in any case, almost entirely irrelevant to the question of the relative pricing of the various digital formats.
Ok. That’s the disclaimers out the way. Now consider this:
Since the introduction of iTunes Plus, labels deliver the same files to iTunes and to the lossless download stores**. Mastered for iTunes requires the same deliverables as a hi-res download store. For the label, the fixed costs for all three are basically the same, and the variable costs are either the same or only increase if the label ups the wholesale price.
If lossless downloads cost more than CDs, it is because the labels want it that way.***
I can’t tell the difference anyway, but if I could, as a consumer, I’d probably buy CDs.
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* I’m using myself as a primary source here, so you should at least consider that I may be lying or mistaken. This would, though, be easy for you to check.
** iTunes compresses the files before delivering them to customers. Lossless stores don’t.
*** If this was an article in Digital Music News, that probably would’ve been in the headline, and nobody would have read the two important but boring paragraphs explaining what this doesn’t tell you and which assumptions were made along the way.
Proper Discord 
Sometimes I feel like a dinosaur because I still buy CDs, but I am surprised that the distribution cost for files seems to be just about half that of CDs, I would have thought it was much lower than that.
Physical distribution is more complicated than digital distribution, but they both involve a lot of work. A big difference is that many of the costs involved in physical distribution increase with the volume of sales (moving CDs around), whereas almost all the digital distribution costs are up-front: you deliver the music to the stores, sit back, and wait for the sales to come in. It’s also worth considering that a lot of consumer marketing work tends to be done by the physical distributor, while the digital distributors tend to focus only on promoting to their retail accounts.
Actually, the content my label delivers to Hi-res retailers (96/24 and 192/24) must be delivered via hardrive due to their enormous file size. The distributor (a major one) is not capable of delivering that media through their feed. There is also a substantial difference in audio quality when the system is set up properly. You could make the argument that an old volkswagen gets you to the market the same as a Maserati, but I’d be quick to point out that the experience in the Maserati would be much more memorable. Also, like the market for the Maserati, the hi-res audio market is small without much room to grow to the mainstream.
I know you know what you’re talking about, and I won’t argue with you over what your distributor does.
It’s possible to deliver very large files through feeds, although it’s true that not everybody does. A 192/24 album is smaller than an HD feature film, which consumers download all the time. 96/24 FLAC is about 12 times the size of iTunes Plus, and these are quite manageable as uploads.
At the extreme end of the spectrum, surround sound adds another dimension to file size, but even then it’s physically possible to deliver through a feed. A 192/24/5.1 album takes up as much space as 108 256kbps albums, so I can see why some distributors (and retailers) prefer hard drives. None of this, though, justifies charging more for lossless than for CD.
I’ve never really liked Maseratis, but I think it’s probably worth considering that most people who drive one never use it at the edge of its performance envelope, in much the same way as most high end stereos are not set up in a room that allows the listener the full benefit of the technology they’ve paid for.