Profit in Sharing - selling music online

American Demographics,  Jan, 2001  by Joan Raymond

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But it just drives artists and record labels crazy to think about all of those consumers bopping to their tunes for free. And although they'd like to put an end to all of that by placing a toll on the downloading highway, pay-per-song is not likely to be the business model of the future. In the Jupiter study of Napster users, 71 percent of those who use the music site said that they were willing to pay to download an entire album. But in a Greenfield Online survey of 5,200 online music shoppers, nearly 70 percent say that they have not paid - and will not pay - for digital music downloads. That's why Jupiter projects that revenue from digital distribution will only reach $147 million by 2003, accounting for less than 6 percent of online music sales, while the sales figures for actual CDs online is projected to exceed $2.6 billion by 2003.

So what does lie ahead for the music industry? Although the new killer application has yet to be discovered, subscription-based services are definitely on the horizon, and may be more viable than a per-song fee scheme, says Steve Forti, director of the research division of Yankelovich Digital Media. "If there was a service that charged $10 or $20 a month, that would give access to anything they'd want, that would be something the consumer would think is reasonable," he says.

In fact, change is already underway. Late last year, Bertelsmann AG and Napster announced a strategic alliance to further develop the Napster person-to-person file-sharing service. The business model seems like a winner for both the Napster community and the music industry. With the new, secure, membership-based service, the "Napster experience" is preserved: members will still be able to share music files. But at the same time, the model provides payments to those who hold the rights, including recording artists, songwriters, recording companies, and music publishers.

Yet, even with such models, the end result is that the entertainment industry has to become savvy about partnerships, gathering and using consumer data, and working free digital downloads into their business plans. Willie Walker, president of Wizer Home Systems, an Austin, Texas-based home networking company, believes that entertainment and leisure are "hot buttons" with clients who want to make their castles 21st century friendly. "Music of the past will continually be pirated until the entertainment industry wakes up and realizes the digital world is all about bits," says Walker. "MP3, streaming audio, streaming video, audio books, TV-on-demand, and IP telephony (phone service over the Internet), are all just bits waiting to be transferred."

In other words, there is no real difference between music, movies, magazines, and television, and in the face of the continuing trend of media mergers, new partnerships that mine data and deliver these bits to consumers in innovative ways will make money - whether it's through royalties, sponsorship deals, or ad revenue. There will be more than a catchy beat carried on tomorrow's airwaves to music consumers - the only question is how to make the most money while the musicians make consumers dance.