MUSIC lovers are being forced to pay high prices for downloading songs from the internet by record companies keen to protect sales of conventional CDs, according to industry experts.

Analysts claim big record labels are making up to 65% more revenue on digital downloads than on CDs — despite an apparent reduction in manufacturing and distribution costs that should bring down prices for online music.

The policy of “strategic pricing” means it can sometimes cost more to download an album than to buy it in the shops, where CD prices have fallen to an average of about £9.

Critics believe the phenomenon is prompting disgruntled music buyers to turn to illegal websites where they risk prosecution for obtaining songs at substantially discounted prices.

While Apple’s market-leading iTunes Music Store sells individual tracks for 79p, people using the Russian-based AllofMP3.com website, the second most popular download site in Britain, can purchase entire albums for £1.

Last week the British Phonographic Industry (BPI), which represents the record companies, claimed that AllofMP3. com was operating illegally and said it will be suing its owners.

In America the Department of Justice has launched an investigation into claims of price-fixing over downloads by leading labels.

Last week MPs on the Commons culture, media and sport select committee asked BPI executives to justify the high cost of internet downloads.

In 2005, 40m tracks were legally bought online in the UK. Although this accounts for only about 2% of overall music sales, the figure is forecast to rise to 15% by 2011, representing a market value of more than £300m.

“The music industry is still at the stage where they don’t want to make everyone suddenly switch to digital yet,” said Mark Mulligan, vice-president of Jupiter Research, a leading analyst in the new media sector.

“They want to let the model evolve slowly and work out what the best model is to protect their bread and butter — the CD.” The high price of digital downloads is part of this strategy and not based on the costs, Mulligan says.

Having questioned online music retailers on a confidential basis, Mulligan believes that about two-thirds of the revenue generated by a download sale goes to record companies. Other analysts concur with a similar figure.

By contrast, companies which license the use of music on behalf of songwriters, composers and music publishers estimate that record companies receive 46% of the revenue generated by sales of CDs. Other analysts believe the figure is closer to 40%.

This means that record companies have increased their revenue on downloaded music over an equivalent CD sale by as much as 65%. At the same time, selling music through the internet does away with the need to manufacture and package CDs and transport them to retail outlets.

While the record companies claim that this cost saving is marginal, Simon Dyson, an analyst at Informa Telecoms & Media, estimates that it accounts for at least 20% of the overall cost of a CD. “When you strip out all the different parts, the record company is making more and it’s more profitable,” said Dyson.

An album on the CD format now sells for an average of £9.08 in stores. Assuming that album has 12 songs on it, it will cost £9.48 if all the tracks are bought individually on iTunes. The online retailer does offer “bundles” of tracks at a discounted price, but most customers still “cherry pick” songs at the standard 79p rate.

Last March the antitrust division of the US justice department launched an investigation that is expected to focus on whether record companies are colluding over the wholesale prices they charge online retailers for music downloads.

Four companies — Sony BMG, Warner Music, Universal Music and EMI — have reportedly been targeted in the inquiry.

Steve Jobs, chief executive of Apple, has previously described record companies as “greedy” for trying to raise download prices.

However, Apple’s iTunes has also been criticised for charging customers in the UK more than in other countries. The company sells tracks for 54p in America and 68p in France and Germany. The European commission is investigating the pricing policy following a complaint from Which?, formerly the Consumers’ Association.

This weekend the BPI insisted that the record companies were offering good value for money. It disputed the independent analysts’ estimates of the mark-ups and claimed that the record companies had invested heavily to make their music available online.

“Record company costs have not fallen much because of online delivery,” said a spokesman. “The [biggest] cost is in the creation of the music, regardless of what format you sell it on. We have invested not only an enormous amount in making digital distribution possible, but also invested substantially in tackling piracy.”

MPs on the culture select committee remain sceptical about some of these claims. John Whittingdale, the committee chairman, said he was “surprised” by “the argument that it costs more to distribute via the web than it does through physical product when quite obviously you don’t have a lot of costs involved in terms of [CD] manufacture, distribution, etc”.

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