Just An Online Minute... Music A Go-Go

by , Mar 23, 2004, 12:00 AM
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Wal-Mart, middle America's favorite retailer, has thrown its hat into the increasingly crowded online music arena. The chain began testing its online music store concept late last year and is selling digital singles for 88 cents a piece-undercutting, (of course), the rest of the field. Apple, Roxio's Napster, RealNetworks' Rhapsody, and a host of other online music providers charge music aficionados 99 cents per download. None of the online music providers are making any money.

In fact, Apple recently said that its iTunes music store sold 50 million downloads since its launch in April 2003 and indicated it won't meet its projected benchmark of 100 million downloads by the end of next month. It'll be interesting to see how this might affect Apple's bottom line. Of course sales of iPods and particularly, those cool iPod minis, are critical.

So if no one's making any money from online music sales, why is everyone from Sony and Best Buy, to Wal-Mart and Sears running headlong into the digital download biz? I consulted a few of my favorite oracles on this point and the responses were varied. While record companies aren't making money yet from digital downloads, other points along the value chain are. The hardware sector, for example. Computers, MP3 devices, Internet Service Providers, and enabling technology providers are all part of the digital distribution model and food chain. The more iPods Apple sells, the better.

Meanwhile, peer-to-peer sites like Kazaa and Gnutella will continue to flourish. Digital music stores won't blossom until digital rights management issues are clarified. While CD sales are in decline, CDs are still the currency through which MP3 files are burned. Music on CDs remains unprotected. Once digital rights protections take hold, music fans will have a harder time finding their favorite tracks for free on Kazaa. The thinking is, that once that happens, online music stores will be poised to take off.

So why are advertisers flocking to associate with online music stores? They get a good cool-factor and potentially, lots of traffic to their websites.

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