Re:Costs? (Score 2, Informative)

Digital distribution actually yields a very small margin. You have huge infrastructure costs (disk, redundancy, DR etc), bandwidth, DRM overheads. Then against every .99 cent track sold, you have to pay the majority to the labels, and most of the rest to several royalty organisations. Once you've gone through the pain of DRM'ing and built up a reasonable track catalogue, you risk having to do it all over again once bandwidth and consumer demands say that 128kbs isn't good enough and they want it at 192kbs, 256kbs, 320 kbs.... A time consuming, disk munching and budget sapping task. The initial investment is huge, with a payback in (at best 3-5) years, assuming that you've achieved a critical mass of content and managed to get enough people to buy it. Certainly not for the faint hearted or financially challenged. Also the Labels don't typically do deals with digital distributers in the same way as they do with physical stock (ie. buy 100k units and get a per unit discount). This is probably more down to the lack of maturity in the digital model - they are still working out how to do it, with little consensus or standards between the labels. As you said, Apple were clear from the start that iTMS would probably operate at a loss, and in effect be subsidised by selling iPods by the truckload. I suspect that the suggested increase in the cost of wholesale tracks is probably an effort to boost the current market (buy them while they are still cheap), rather than any real move to increase the cost.