How Much Is Music Worth?

Music subscription services may result in bargain binging

Let's say you wanted to buy a copy of Linkin Park's Hybrid Theory, in honor of their current protest against Warner Music Group for not cutting the band in on WMG's (not-as-successful-as-planned) IPO. For $18.98 (list price), you'd get a CD from which you could rip MP3s to play on whatever portable device you like; you could also sell the disc back to a record store for a few dollars, or give it to a friend, perfectly legally. Alternately, you could buy Hybrid Theory at amazon.com for $13.49 plus postage—it'd take a few days to get to you, though.

Even more conveniently, you could buy a digital download. Hybrid Theory will run you $9.90 from MSN Music, since Apple's iTunes store has established that people will pay 10 bucks for a digitized album. But MSN's protected Windows Media files don't sound as good as a CD, you can't give them to a friend, you can't resell them when you're done with them, and you can't play them on an iPod. Also, "you," in this particular case, are very likely to be male: The British newspaper The Guardian cites a study claiming that men make up 96 percent of the market for paid music downloads. (Just over 50 percent of Americans who buy music are female, according to the Recording Industry Association of America.)

If $9.90 for protected files sounds like a rip-off, yourmusic.com will mail you a perfectly good CD of Hybrid Theory for $5.99. Yourmusic is a division of BMG Music Service, the company that was once the RCA Record Club; The Wall Street Journal reported a few weeks ago that BMG's parent company Bertelsmann AG is also buying Columbia House for $400 million. Every disc in Yourmusic's catalog is $5.99, postage included. That makes music retailers very unhappy, because it's significantly less than what they pay wholesale. John Timmons, who owns the record store Ear X-Tacy in Louisville, Kentucky, has complained about Yourmusic forbidding stores to buy retail stock from them, and announced in March that he'd "opened new [Yourmusic] accounts, in case they totally shut me out of my current account, which I expect they'll do." That's not all they did; in mid April, BMG Direct filed a lawsuit against him.

Meanwhile, the price of Hybrid Theory keeps dropping. The dubiously legal Russian site allofmp3.com will sell you the whole album as MP3s, with no digital rights management attached, for $1.08. Not that Linkin Park or WMG is likely to see any of that money, but it's safe to assume that allofmp3 is making some profit after overhead, bandwidth costs, and credit card fees. Compare that to Apple's cut of sales from the iTunes store, usually said to be between 30 and 35 percent, and suddenly 99-cent songs and $9.99 albums look like cash cows.

You can pay even less than a dollar, legitimately, to hear an album—although maybe not Linkin Park's albums, which aren't on every digital service. Subscription programs like Napster to Go and Rhapsody to Go let users download as many tracks as they want for a flat rate of around $15 a month. Those files can't be burned to CDs; they only play on Windows-compatible pseudo-Pods, and when you stop paying the monthly fee, they self-destruct. So may their providers, thanks to the new Yahoo Music Unlimited, which offers the same services for as little as $5 a month (burnable files are 79 cents apiece). It might be that Yahoo is willing to lose some money on Music Unlimited at first to establish a subscriber base and freeze out its competitors, since it has a lot more cash to burn than they do.

If a YMU subscriber is hoovering up a few hundred songs a month, how much money trickles down to the copyright holders? Labels who rent subscription-style, rights-restricted downloads through Yahoo earn a prorated share of net revenue, which reportedly works out to something like a penny a song. Not everybody gets the same rates, though. "It's definitely a two-tiered system," says Tim Mitchell of the Independent Online Distribution Alliance, which represents a few hundred indie labels. "The indies get treated differently from the majors."

And what about the Linkin Parks of the world? Artist royalties for legal downloads are a fraction of the retail price. When that fraction means a thin slice of a penny for a "legitimate" download, and major labels are selling CDs for less than digital files, it becomes mighty tough to make the case that unauthorized file sharing is a real financial threat to anyone—or that music you can't hold in your hand is worth the inflated prices we've been asked to pay for it until now.

 
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