A cute story, but a difficult market to police without some serious architectural changes whose implications are not quite so clear: The Right Price for Digital Music - Why 99 cents per song is too much, and too little
The one bright spot for the industry has been Apple’s iTunes store, which has sold 600 million songs since 2003, accounting for 80 percent of legal downloads in the United States. Piracy is clearly here to stay, but as iTunes has shown, the record companies’ best strategy is to provide an easy-to-use service that offers music downloads at a fair price. But what price is “fair”? Apple says it is 99 cents a song. Of this, Apple gets a sliverâ€”4 centsâ€”while the music publishers snag 8 cents and the record companies pocket most of the rest. Even though record companies earn more per track from downloads than CD sales, industry execs have been pushing for more. One option is a tiered pricing model, with the most popular tunes selling for as much as $3. After all, the music honchos reason, people pay up to $3 for cell-phone ring tones, mere snippets of songs.
[...] What we need is a system that will continue to pack the corporate coffers yet be fair to music lovers. The solution: a real-time commodities market that combines aspects of Apple’s iTunes, Nasdaq, the Chicago Mercantile Exchange, Priceline, and eBay.
Here’s how it would work: Songs would be priced strictly on demand. The more people who download the latest Eminem single, the higher the price will go. The same is true in reverse–the fewer people who buy a song, the lower the price goes. Music prices would oscillate like stocks on Nasdaq, with the current cost pegged to up-to-the-second changes in the number of downloads. In essence, this is a pure free-market solution–the market alone would determine price.
[...] The big wild card here is the impact of illegal file sharing. David Blackburn, a doctoral student at Harvard, has argued that peer-to-peer systems increase demand for less popular recordings but dampen sales of hits. If that’s the case, charging extra for top sellers might just push legal downloaders back into the outlaw world of peer-to-peer file trading. If that happens, perhaps the record companies will start offering free digital downloads of top-100 hits (with ads embedded inside, of course), while charging whatever the market will bear for the rest. A Digital Music Exchange may not be a perfect solution, but who would you prefer to set the price of music: consumers or record executives?