When you compare the size of FLAC to MP3, you're talking about a 4x size difference.
Ok, just to be clear, here you're talking about costs for the digital distributors (Apple, Google, Amazon), which, I suppose are now technically part of "the music industry", but as technology companies previously unaffiliated with music, they aren't really what I think of when someone talks about "greed in the music industry".
The entire music catalog of these services would take around 200-300TB of disk space. Turn them to FLAC and they'd need around 1000TB (1 petabyte). While that is certainly a cost, let's see how it compares: it turns out that if every Gmail user had only 2MB in their inbox, that would also equal 1 petabyte of storage. And in terms of bandwidth, the streaming services provided by these distributors must swallow at least an order-of-magnitude more bandwidth than one-time downloads do. In other words, I think quadrupling the bitrate of their music catalogs would go nearly unnoticed in the storage/bandwidth costs for these companies.
So if it's not a choice made by the distributors for cost reasons, could it be a choice made by the labels for control reasons? They don't want "lossless" digital versions of their music out there? It's hard to make that conclusion, since HDtracks sells FLAC hi-res versions of many major-label releases. And it's now quite some time ago that the labels realized how counter-productive it was to attempt to limit "what gets out there", and removed DRM. So it would seem weird for them limit FLAC for those reasons.
Finally, it seems odd that the music industry
wouldn't be trying to sell something like FLAC as "higher quality" (whether it was or not) at a higher price, in order to make more money. And in fact, this did happen with "iTunes Plus", when simultaneously, Apple doubled their bitrate, removed DRM, and raised their prices. But presumably they have data (and the music industry remembers the failure of SACD and DVD-Audio) revealing that once the quality reaches a certain point, the vast majority of consumers just don't give a shit, and won't pay any more money.
So my best guess at the moment is that bitrates sit where they are because it serves the most customers the best: 1) the quality is good enough for the vast, vast majority of their customers; 2) having a single bitrate available eliminates customer paralysis from
the paradox of choice; 3) they don't complain about having too little space on their devices (or about their devices being too expensive due to the need to contain 4x the storage).
As for changing formats in the future: in a world where everyone is already moving away from downloads and over to streaming, it shows that consumers are caring less and less about "ownership" of music at all, so they most definitely don't care about the particular format that music is encoded in.
In an ideal situation for both consumers and the industry, they wouldn't even know the name (MP3, AAC, FLAC) of the format they're listening to, just as no one gives a shit about the video encoding used by their cable company. And that's happening with streaming. Even a nerd like me has no idea what format Spotify files are. All that music lovers really want is to be able to push a button and hear a song that makes them happy. The vast majority of times when music touches our emotions, we're in some place (a concert, a car, a club, etc.) where the environment "degrades" the audio far more than the encoding, and we still love it. The obsession over format seems to only happen when we forget why we love music in the first place.
