I have a different explanation and it has to do with systems competition (again). Apple is making money on the iPod, which it controls, not the music, which it doesn't control. For more, see my post:
An excellent point. I think our two explanations mesh well. In both arguments, Jobs is treating music sales as a loss leader: either for iPod sales, or for future music sales. I suspect there's some of both going on.
All Comments
http://uchicagolaw.typepad.com/faculty/2005/10/...