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Tuesday, October 04, 2005

Music Fans Vote with their Mouse-Clicks

The other day we noted how the latest Rolling Stones album is being distributed on SanDisk memory cards... and questioned whether this is a format music fans really want.

What fans do seem to want, though, are digital music downloads. The International Federation of the Phonographic Industry (IFPI) says that digital music sales tripled worldwide in the first half of 2005 over the same period in 2004. Digital music now accounts for 6% of all music sales, while sales of physical music formats (like CDs) have fallen by 6.3%. IFPI credits the increase in broadband Internet access and the proliferation of portable MP3 players for the growing popularity of downloadable music.

However, overall music revenues are down by 1.9%, reflecting lower prices being charged for music, and suggesting that illegal music swapping is far from dead.

Online digital music is branching out to customers who might never have considered it before. MusicGiants is a new service that offers "high definition" music downloads... that is, tracks that aren't compressed. The service, which charges a $50 membership fee and $1.29 per track, is designed for audiophiles who want to play music on high-end sound systems, and who have until now shunned MP3s for what they say is inferior sound quality. Broadband and cheaper storage -- combined with the growing acceptance of the Internet as a music delivery mechanism -- make such services possible.

Finally, if Warner Music chairman Edgar Bronfman has his way, online music stores would employ variable pricing, charging more for downloads of popular songs than for those less popular. This is a radical proposal given the recording industry's traditional fixed-price model, in which all music, popular or not, is priced roughly the same. Internet technology, however, makes variable pricing practical. For those whose musical tastes steer clear of the Top 40, this is great news. But what would be the threshold that music would have to hit before fans stopped buying? Would dynamic pricing actually limit the popularity of some songs and artists? ("Hmmm... I think I'll wait to buy this band's songs until they're not so hot anymore...") Should prices be capped? After all, as Steve Jobs has noted, “If the price [of online music] goes up, [consumers] will go back to piracy and everybody loses.”

UPDATE: Digital music isn't the only dilemma facing the recording industry. Online video (via sites such as Google Video, now in beta) and satellite radio present new licensing challenges.

Sources: Techdirt, Technology Liberation Front