News began circulating last year that the major 4 recording labels were dissatisfied with iTunes’s current price structure. These rumors eventually spilled over into reality when Steve Jobs, CEO of Apple Computers, publicly called the record labels “greedy” for wanting a bigger piece of the iTunes pie.

Most of the big four labels, especially EMI Music, has been pushing for a variable pricing structure. Variable pricing, the labels argue, will simply follow the basic rules of economics; charge a higher price for artists in greater demand, while charging less for artists in scant demand. Just last November, EMI chief executive Alain Levy expressed his confidence in variable pricing to the Wall Street Journal.

‘There is a common understanding that we will have to come to a variable pricing structure,’ he said. ‘The issue is when. There is a case for superstars to have a higher price.’

The problem with this concept, many argue, is that most of the music sold on iTunes belongs to high demand artists. Although some prices will be cheaper than 99 cents, the general perception will be the overall price of iTunes has significantly increased. While the authorized music distribution scene managed over 500 million in sales in 2005, the industry is still in its fragile infancy. iTunes, the leading distributor with over 80% of the market share, has also argued that changing the price structure will only encourage piracy. 1 billion downloads in 3 years may be considered an achievement, but it plays into the fragility of the market as this many files transgress file-sharing networks within weeks.

With 80% of the market share, Apple has clearly demonstrated its ability to dictate the course of online music. This has been a point of contention with many of the subservient distributors, especially Napster. While Napster holds second place in terms of market share, it might as well be in the automotive parts distribution business as it attributes to less than 15% of all online sales. Despite numerous clever marketing attempts to dislodge iTunes’ iron grip on authorized sales, Napster, as well as third place contender Rhapsody, have been unable to make headway.

Napster’s latest attempt to edge into the market features a free music giveaway. It allows visitors to Napster.com to listen to any of the more than 2 million cataloged songs up to five times, after which he or she would have to subscribe. The effort is the latest in a string of perimeter attacks on iTunes to see what tactic will stick. Many will remember Napster’s now abandoned attempt to promote the unlimited “Napster to Go” option, where for just under $15 per month the subscriber can rent an unlimited amount of music. The corresponding promotion attempted to portray that in order to fill an iPod from iTunes, it would cost the individual nearly $10,000.

Yet this portrayal of the typical iTunes user is unrealistic. Many iTunes customers fill their iPods by various means, such as swapping iPod contents, CD ripping, and good ol’ P2P networking. The marketing campaign failed miserably and Napster is now focusing on above mentioned strategy.

It’s interesting to note that EMI chief executive Alain Levy may not be completely wrong in his prediction. Apple announced yesterday the price of iTunes will remain at 99 cents, but has refused to comment on how long this price freeze will stand. The two sides are likely still in negotiations; as the continuation of the 99 cent structure is probably a temporary fix for a long term situation. Yet Apple isn’t impotent in these negotiations, considering they’re the only music distribution firm the big four are talking to.