Rising music download prices....or just lower margins

According to an FT.com article (subscription required), the wholesale price for downloadable music is set to rise.

According to the article, the major music labels initially set wholesale prices artificially low at $0.65 per song in order to stimulate demand.  Now that demand for music downloads has exploded, the major music labels are planning to increase their prices to $0.99 per song, a 52% increase.  Steve Jobs is reportedly furious.

Quick comment:  Most articles on the subject have assumed that the price increase will be passed along to consumers, possibly resulting in increased music piracy or slowing demand. But it is quite possible, even likely, that digital music retailers will bear much of this increase.  After all, the music download space is already crowded with Apple (AAPL), Real Networks (RNWK), Napster, Wal-Mart (WMT) and others offering essentially the same product.  The likely outcome is slightly higher prices for consumers and lower margins for retailers.  Its no wonder why Steve Jobs is upset.  Here's a simple calculation:

Current scenario:
iTunes price: $0.99
Cost to Apple: $0.65
Profit: $0.34 (53% margin)

New scenario:
iTunes price: $1.25
Cost to Apple: $0.99
Profit: $0.26 (26%)

Another interesting element of this story is the implication that all five major music label are on-board.  Remember, it wasn't too long ago that Sony Music (SNE), EMI Group, Warner Music (TWX), Universal Music (V), and Bertelsmann were accused of price-fixing.  Eventually, they settled by agreeing to pay a $67 million fine and distributing $76 million worth of CDs.  It will be curious to see whether similar suspicions arise in this case.