iTunes fights price rise threat

Apple's mighty iTunes is preparing to face down demands from the major record labels to raise the price it charges for some songs. Talks over new contracts with the big four music groups - SonyBMG, EMI, Warner Music and Universal - are going to the wire, with existing deals set to expire before the summer.

But Steve Jobs, Apple's chief executive, is understood to be increasingly confident he can maintain iTunes' one-price-fits-all business model. Downloads are currently sold for 99 cents apiece in the US, 79p in the UK.

Mr Jobs has accused the labels of being greedy in their bid to raise prices. The labels insist that they just want the normal commercial flexibility on price that would allow them to promote certain music - perhaps new artists - with special offers, and to charge extra for premium content.

Apple launched its iTunes store three years ago this week, and has sold a billion songs. Together with its iPod music player, the company has made legal music downloading mainstream. Mr Jobs believes that the 99 cents price point has been the key to that success, low enough to attract consumers who might otherwise be tempted to illegal sites, but high enough to preserve some margin for the record labels.

Financial results in the past few days have shown the growing importance of digital music sales. EMI said annual revenue from online sales had doubled to £110m, while Universal Music said 10 per cent of its revenues were now coming from legal downloads.

The iTunes store accounts for three out of every four legally downloaded songs. Mr Jobs is calculating, therefore, that he has the upper hand in the negotiations, and that the labels' threat to remove their music from iTunes is a hollow one.

The music groups are likely to have to wait for the emergence of a credible new rival to iTunes.