The Economics of Online Music
Very nice analysis here from Gareth about one of the most-overlooked aspects of the music-sharing debate: the (non-monetary) cost to users of the time they spend searching for music. Check out his article How To Make Money From Online Music (and make everybody better off in the process).
From his conclusions:
This analysis has shown that it is possible attract paying users to an online music service. What's more, we've seen exactly how to achieve this: one must give the user an experience that is better than free file-sharing by reducing search costs. Major record labels must give up on the attempt to win customers with an inferior product and instead they must innovate to find the best way of reducing search costs for consumers. Apple is leading the way with iMS, and I believe other companies will have no choice but to follow.
My contention has always been that for the segment of the music-seeking market which I belong to (admittedly the minority), the appeal of file-sharing services is NOT that the music can be downloaded for free. Rather, software tools like Kazaa and Soulseek drastically reduce our "search costs" for music, which is of great benefit even if downloads must be paid for. If one's tastes in music fall anywhere outside the mainstream artists which are aggressively marketed and saturate the airwaves, finding the artists and songs you'd most like can be a difficult and time-consuming process. File-sharing services can make it substantially easier to find this type of music. For this reason, initiatives like Apple's new iMusic service can be successful despite charging users for downloads (currently at the rate of $0.99 a track).
