Digital Music Services 2004 - Page 2

....Wharton marketing professor Peter S. Fader says all the signs point to the eventual emergence of streaming as that model.

For the moment, though, the models based on selling tracks and albums will predominate because that is how most people have learned to obtain music online, Fader notes. Perhaps more important, downloaded music is portable. It can be burned to a CD for listening in the car. It can be put on an MP3 player for listening while jogging or flying. But, in the end, downloading is burdensome, Fader suggests. "Obtaining the songs is a nuisance. It's a pain to download them, to organize them, to back them up."

And when you come down to it, Fader adds, people really don’t care much about having physical ownership of their music. What they really care about is having access to the music they like, when and where they want it.

Given that preference, financial and technological advantages will help the streaming model win out, Fader says. For downloading services the margin of profit is usually too thin. The download services pay music labels around 79 cents per track in royalties. Another 5 cents or more per track goes to credit card companies to cover transaction costs. Add in operating costs and the 99 cents or so in per-track revenue does not leave much room for profit.

By contrast, the streaming services pay the music industry less in copyright fees - as little as one cent or less each time a song is played - because the ownership of songs that are streamed but not downloaded does not pass to consumers. Perhaps more important, rapidly changing technology - including the spread of satellite radio, the development of phones that double as portable jukeboxes and the advent of MP3 players capable of receiving streamed music - will increasingly give consumers their music on demand while freeing them from downloads and all the attendant hassles, Fader says. This is the "digital jukebox" we have been hearing about - as long as you have access to he music anywhere and anytime, why bother with the download? I'd rather be able to stream whenever I want, and still get CDs for albums I like best with full artwork, production info, liner notes, etc. Downloading song by song is a pain in the ass.

Article Author: Eric Olsen

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