My uninformed guess is that you can charge substantially more than this and still provide great value. Consider that $5 is about the cost of four minutes of programmer time.
Yeah, he could most likely get away with charging higher. How do you suggest a company test out pricing though? I mean I think that's exactly what Amazon has done and they get criticized for doing so (since they do it in a A/B fashion)
I guess he could just bump all the songs to $10 and see if sales increase/decrease/etc over a period of time. Pricing is definitely an interesting problem, for all startups.
My uninformed guess is that you can charge substantially more than this and still provide great value. Consider that $5 is about the cost of four minutes of programmer time.