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.
* 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.