The Apple iTunes Music Store is gearing up to add pre-cut ringtones to its inventory and the pricing for the configuration could change the dynamics of the game. Major label sources say that while Apple will announce ringtones at its Sept. 9 iTunes showcase, as first reported by Cnet. The will likely be priced at $1.29.

That's a dramatic drop in ringtone pricing as many other carriers sell ringtones priced at $1.99-$2.99. Also, in the early days of mastertones, ringtones could be as much as $3.49.

Up until now iTunes gave iPhone users the right to cut their own ringtones because the majors wouldn't supply them with pre-cut ringtones. It is not known if the ringtones will be available to iPhone users only, as seems likely, or to phones on all wireless operators.

"Ringtones are priced too high," a senior executive with one major said. "I always thought it was ridiculous that you can buy tracks for 99 cents or $1.29" but a snippet of a song can cost consumers as much as $3. "We are hoping that iTunes move will bring pricing down at the other carriers and hopefully it can revive the ringtones market," that executive said.

In 2008, ringtones declined to 167.3 million versus the 220 million ringtone scans counted in 2007, according to Nielsen SoundScan. As of Aug. 30, ringtones are down again this year to 93 million units, from the 121 million units scanned in the corresponding period last year.

If the pricing is $1.29, it may take time for other carriers to react because the majors don't use a pure wholesale price when selling ringtones to carriers. Instead, their pricing model is a combination of a wholesale price, or floor price, and a percentage of retail. That way, if a carrier prices ringtones expensively, the labels can participate in the upside, but if a carrier goes too low with their pricing, the floor price protects the majors.

A major label source says his company is now in negotiations with at least one carrier to change the terms of its deal so that carrier can become competitive with iTunes ringtones gambit.

Typically, the wholesale floor price ringtones is in the $1.25-$1.30 range, while the variable price works out to about 50% of retail for ringtones. But beside that formula, labels may further have different specific terms with each carrier, major label sources say.

In the deal iTunes is doing with the majors, it is asking for a straight wholesale price, and has so far been successful in eliminating the percentage from the ringtone pricing model. So far, at least two majors have signed on to sell iTunes ringtones, while a third is said to still be in negotiations.

In order to accommodate the Copyright Royalty Board's ruling that ringtones carry a 24 cents mechanical rate - something that the RIAA is appealing - sources suggest that the majors are selling ringtones to iTunes for about $1.

Further, sources say the lower wholesale price for ringtones is part of the accommodation the majors reached with iTunes when Apple agreed to variable pricing.

Sources say the pre-cut ringtones will only be added to the U.S iTunes store.

In other moves, at its Sept. 9 summit, Apple is expected to announce an upgrade to iTunes which will allow the store to accomodate "Cocktail," the addition of artwork and liner notes in digital format to make the download experience compatible with the CD packaging experience.

An iTunes spokesman declines comment.