Reg Braithwaite is one of the smartest bloggers out there, but I really don't agree with his latest post, Why Apple is more expensive than Amazon at all.

Setting aside the question of whether Apple is pro- or anti-DRM, the most problematic meme that is being spread (not just by Reg, but elsewhere, as well) is the idea that the music industry is using price fixing to undercut Apple. Quite simply, this is ridiculous.

Here's the bottom line: Apple has exercised complete control over item pricing on iTunes, both in terms of setting consumer prices and setting producer prices. They have a single flat-rate deal that they offer all music producers, and if you don't like that deal, your songs aren't on iTunes -- it's that simple.

The record companies want the ability to offer variable pricing -- higher on new hits, lower on catalog titles -- and Apple has refused:

The recording industry and Apple had been at odds over Apple's insistence to keep its flat rate with some labels wanting variable pricing, including higher prices for new releases. “Apple has all the cards, and when you have all the cards, you can play hardball,” said Ted Schadler, an analyst at market research firm Forrester Research.

AP Wire, May 2, 2006

So while Amazon is fine with selling some songs for $0.99 and some for $0.89, Apple enforces their one-price-fits-all philosophy. Record companies actually can't offer tracks to iTunes for less, regardless of what they would prefer. And while Amazon may be operating at a lower margin on some items and a higher margin on others (as they do with books, CDs, and everything else they sell), Apple always takes the same margin on every song.

So, are the record companies obligated to sell Amazon tracks at the same price Apple has fixed? If so, why? Does Apple have the right to dictate pricing for all vendors, and not merely the price at which they will purchase? That doesn't even make sense.

Are the record companies trying to undercut Apple? Of course they are. But calling this price fixing is tantamount to saying that Apple has the right to set the royalty rate for the entire digital music industry. I hope people will stop drinking that particular Kool-Aid.

Labels: amazon, apple, drm, itunes, mp3, pricing