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Music At Your Fingertips; Battle Amongst Sellers


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E-Commerce Report: Music at Your Fingertips, and a Battle Among Sellers

December 1, 2003

By BOB TEDESCHI

COMING to a music download store in 2004: Yo-Yo Ma's

Shostakovich Quartet No. 15 and Bob Dylan's second show at

Amsterdam.

So go the predictions of some music industry executives,

who say that as music labels and retailers compete more

aggressively online, they will offer more obscure titles

and recordings of live performances that could find a

paying audience through downloads but make no financial

sense to distribute on CD's.

This is but one of a handful of trends likely to emerge

next year in the paid digital download arena, industry

executives said. With hundreds of millions of investment

and marketing dollars flowing into the sector, it could be

the most active online commerce category. And with the

activity comes a risk that it could resemble the Internet

bubble of 1999, though on a smaller scale.

The first area of resemblance, analysts and executives

predict, will be in the sheer number of online music stores

that sell downloads, which will continue to build through

the early part of next year, only to contract beneath the

weight of excessive marketing spending and slim profit

margins.

There will be fewer paid download sites running a year from

now than there are today, said Josh Bernoff, an analyst at

Forrester Research, a technology consulting firm.

The reason, Mr. Bernoff said, is that music tracks that are

downloaded digitally generate tiny profits. Apple pays

roughly 70 cents to the labels for each song it sells for

99 cents, Mr. Bernoff said, and, based on Apple's

projections of sales of 100 million songs by April - the

first 12 months of its iTunes service - "you're talking

about $30 million in gross margin, not counting all the

advertising or the costs of running the store."

"That's brutal, and this is the company with the dominant

market share."

Peter Lowe, Apple's director for marketing of applications

and services, agreed that it was hard to make money selling

music downloads. But, he said, iTunes is close to

break-even. Still, he acknowledged that one reason Apple

was in the business was to drive sales of its iPod music

player and to help the company position itself as a

cutting-edge brand.

Those attributes may not apply to other entrants in the

field. Nonetheless, other companies are certain to join the

competition for music fans looking to start downloading

songs, or to switch from peer-to-peer services like Kazaa

and Morpheus, as the music industry fights piracy.

In addition to Apple's iTunes, RealNetworks' Rhapsody,

Napster of Roxio, MusicMatch, BuyMusic.com, BestBuy and

others, online music stores from several other companies

are expected to start in the coming weeks and months.

JupiterMedia, a technology research firm, predicts digital

music downloads will be a $1.1 billion marketplace next

year and $3.2 billion in 2008. According to Nielsen

SoundScan, the biggest paid download sites sold $3.2

million worth of individual tracks in October alone, more

than double the number sold in July.

Read the full story here:

http://www.nytimes.com/2003/12/01/technolo...4fa68402316fd9d

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