Apple Unveils Higher Quality DRM-Free Music on the iTunes Store: "DRM-free tracks from EMI will be offered at higher quality 256 kbps AAC encoding, resulting in audio quality indistinguishable from the original recording, for just $1.29 per song."
This allows the labels to go above the $0.99 price point, and Apple to give customers a justification to spend more per track-- the $1.29 track is simply a better product than the $0.99 track in terms of sound quality and freedom to use.
The next question is: do the other majors sign on?
When does Apple offer the same terms to independents. Many indies would be willing to go DRM-free at $0.99. How price elastic are digital downloads?
Albums will remain at $9.99 with some price flexibility, but will be the premium, 256 kbps, DRM-free versions. It's a subtle way of adding value to the higher priced album product.