updated 04:05 pm EDT, Mon April 17, 2006
Future of online music
Despite the tremendous growth of digital music, prices must increase if companies want to make money selling music, according to analysts. A new report says that the $0.99 price point --over which the labels have been fighting with Apple -- is simply not profitable, given the margins, the dominance of Apple's iTunes in digital music sales, and the tremendous popularity of the iPod. Even Apple, which sells millions of song and owns more than 80 percent of the US digital music market, is only marginally profitable at best, according to a report by TheStreet.com. "It's a long-haul business right now," says Aram Sinnreich, managing partner of Radar Research, a Los Angeles-based consulting firm told the publication. "It will be at least three years before anyone can make a serious profit selling digital music," largely because of the hold that Apple has on the market. Despite a rapidly growing market, the future of pure-play music services is in jeopardy because of market economics.
The report says that digital music market grew by 275 percent in 2005 to just over $500 million and that customers spent additional $150 million or so on music subscription services.
Sinnreich said that the iPod may be holding the industry, especially subscription-based stores, back because of compatibility issues with non-Apple music services. "The iPod's success is holding back subscription services "to a tremendous degree at this point," according to the analyst.
Music sales, the report argues, will likely not be a primary revenue source; instead companies such as Apple and mobile carriers will use music revenues to boost revenues and add new streams of revenue.
"If history is any guide, the only people that make money [in music] are the [music] labels," according one anlayst quoted by TheStreet.com.