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Some researchers maintain that in order for platforms like Apple's iTunes Music Store to take off, recording companies and distributors must either cut prices substantially or alter current business models. SAN FRANCISCO -- When CEO Steve Jobs unveiled Apple Computer's new music-download service here this week, he touted the introductory price of 99 cents per song as "pretty doggone close" to free.
But according to academics who've studied the economics of digital music distribution, the cost still seems too high to attract users of peer-to-peer file-trading services.
Following Apple's much-anticipated rollout of its iTunes Music Store, which is backed by the five major music labels, some researchers maintain that in order for such platforms to take off, recording companies and distributors must either cut prices substantially or alter current business models.
"There's a good chance that if the price was as high as 50 cents, services would still suffer because they're facing, practically speaking, competition at zero," said William Fisher, director of Harvard University's Berkman Center for Internet & Society, who is writing a book on technology, law and the future of entertainment.
Fisher said he believes operators of downloading services need to set prices by keeping in mind that it is substantially cheaper to deliver an electronic file than a packaged CD or single.
In addition, commercial services shouldn't put restrictions on the way files can be remixed or transferred, causing potential customers to opt for freewheeling file-trading services like Kazaa or Morpheus.
Fisher isn't alone in doubting Net users' willingness to pay CD-like rates for downloaded songs.
Neil Netanel, a law professor at the University of Texas, said he would prefer doing an end run around the pay-per-download services altogether.
Figuring that people will continue to trade through peer-to-peer networks, he advocates a system of so-called compulsory licensing (PDF), where people would pay a tax of around 4 percent on ISP subscriptions or purchases of devices that download or play content from file-trading services. The proceeds of the tax would compensate copyright owners for revenues lost because of file trading.
"Unfortunately for the music industry, the context now is there are millions of people who are getting the music for themselves for free," Netanel said. "It's hard to compete with free."
With a tax licensing scheme, he said, copyright owners would at least get some revenue from file trading.
Brian Zisk, technologies director at the Future of Music Coalition, thinks labels would do better to simply make the price of downloads so low that consumers wouldn't mind paying.
Zisk said he believes the appropriate price of a downloaded song is 18 cents. At that price, he said, the songwriter and publisher could receive eight cents per song, the inflation-adjusted sum they are entitled to under the Copyright Act of 1976. The performer and label would get another eight cents, leaving a couple of pennies for the distributor.
"It would be a rate at which people would consider music to be disposable," Zisk said, and would allow for a more convenient distribution system than peer-to-peer trading.
At download sites with major-label content, prices for individual songs typically hover around a dollar per download, though many rely more heavily on subscription revenue.
At Pressplay, a music site backed by Sony and Universal Music Group, users pay $10 a month for unlimited downloads and streaming from its online catalog. "Portable downloads," which can be played on multiple devices, cost between 80 cents and $1.20 each, depending on the number purchased.
Listen.com charges $10 a month for unlimited access to its music collection, plus another $1 for each track burned to a CD.
MusicNet, created by Warner Music Group, BMG Entertainment and EMI Recorded Music, has a somewhat different model. Subscribers who access the service through RealNetworks pay $5 to download up to 100 songs per month.
Apple's iTunes store does not have a subscription component, offering only single downloads for 99 cents each.
On the surface, Fisher acknowledged that compared to the price of a CD, the 99-cent download seems a reasonable proposal. If one considers that a typical CD by a popular artist contains less than a dozen songs and costs more than $12, downloading would be slightly cheaper.
However, Fisher noted that the price comparison isn't entirely valid, since it costs much less to distribute music digitally than to mass-produce a CD, package it and ship it to retailers.
He estimated that providing digital downloads requires about one-third the expense of releasing the same content in CD format. Taking that into account, $1 seems far too costly for a single track, Fisher said.
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