Are web tunes profitable?

Apple Computer has been selling songs for 99 cents apiece through its new iPod technology, Napster is selling music at the same price. But will anyone make money?

The November 19 Wall Street Journal, “With the Web Shaking Up Music, A Free-for-All in Online Songs,” suggests maybe not. It is estimated that for each song, 65 to 79 cents must be paid in wholesale costs to music companies and various intermediaries. Then add credit card processing fees, bandwidth charges, and customer service costs. Not much is left over in terms of profit.

Apple hopes to make back the money by selling iPod players, Steve Jobs admitted as such publicly. But what will happen once competitors copy iPod, pushing down its price? Many of Apple’s rivals hope to make money, not on individual songs, but rather by selling music subscriptions. The subscriptions, however, typically let consumers hear the songs but not own or transfer them, a model which has yet to prove popular. It is hard to ignore that shares of Roxio, the company that owns Napster, have lost half their value in the last month or so.

Wal-Mart plans to enter the business, it will sell songs and hope to draw listeners to its web-site, where they can view and buy offerings of electronic goods.

My conclusion: None of these ideas is a proven winner. I still expect free file-sharing, whether legal or not, to serve as the industry norm.

Addendum: Winterspeak offers some interesting observations on the market.


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