(one thing I thought interesting he we'd discussed previously just how
much Apple earns from iTunes downloads, and it is revealed in this article)
http://www.nytimes.com/2003/12/01/te...01ecom.html?th

Music at Your Fingertips, and a Battle Among Sellers
By BOB TEDESCHI

COMING to a music download store in 2004: Yo-Yo Ma's Shostakovich Quartet
No. 15 and Bob Dylan's second show at Amsterdam.

So go the predictions of some music industry executives, who say that as
music labels and retailers compete more aggressively online, they will offer
more obscure titles and recordings of live performances that could find a
paying audience through downloads but make no financial sense to distribute
on CD's.

This is but one of a handful of trends likely to emerge next year in the
paid digital download arena, industry executives said. With hundreds of
millions of investment and marketing dollars flowing into the sector, it
could be the most active online commerce category. And with the activity
comes a risk that it could resemble the Internet bubble of 1999, though on a
smaller scale.

The first area of resemblance, analysts and executives predict, will be in
the sheer number of online music stores that sell downloads, which will
continue to build through the early part of next year, only to contract
beneath the weight of excessive marketing spending and slim profit margins.

There will be fewer paid download sites running a year from now than there
are today, said Josh Bernoff, an analyst at Forrester Research, a technology
consulting firm.

The reason, Mr. Bernoff said, is that music tracks that are downloaded
digitally generate tiny profits. Apple pays roughly 70 cents to the labels
for each song it sells for 99 cents, Mr. Bernoff said, and, based on Apple's
projections of sales of 100 million songs by April - the first 12 months of
its iTunes service - "you're talking about $30 million in gross margin, not
counting all the advertising or the costs of running the store."

"That's brutal, and this is the company with the dominant market share."

Peter Lowe, Apple's director for marketing of applications and services,
agreed that it was hard to make money selling music downloads. But, he said,
iTunes is close to break-even. Still, he acknowledged that one reason Apple
was in the business was to drive sales of its iPod music player and to help
the company position itself as a cutting-edge brand.

Those attributes may not apply to other entrants in the field. Nonetheless,
other companies are certain to join the competition for music fans looking
to start downloading songs, or to switch from peer-to-peer services like
Kazaa and Morpheus, as the music industry fights piracy.

In addition to Apple's iTunes, RealNetworks' Rhapsody, Napster of Roxio,
MusicMatch, BuyMusic.com, BestBuy and others, online music stores from
several other companies are expected to start in the coming weeks and
months. JupiterMedia, a technology research firm, predicts digital music
downloads will be a $1.1 billion marketplace next year and $3.2 billion in
2008. According to Nielsen SoundScan, the biggest paid download sites sold
$3.2 million worth of individual tracks in October alone, more than double
the number sold in July.

While some sites will stick to the business of selling downloadable songs,
others will gravitate toward multiservice offerings along the lines of
iTunes and Rhapsody (www.listen.com), where radio stations sit a click away
from the store, or MusicMatch, where users listening to the site's jukebox
can click on an icon for the current song and buy the track.

Sean Ryan, vice president for music services at RealNetworks, expects the
services next year to include some form of subscription download service.
Such an offering, he said, would combine the flexibility of the so-called
streaming services - where users listen to unlimited numbers of songs on
demand, but cannot download them - and the portability of downloaded tracks.
"The idea is that consumers can download as many songs as they want," Mr.
Ryan said, "and move them from one device to others, but at the end of 30
days, if you don't pay the subscription fee, the songs go away.

While the technology exists to offer such a service, Mr. Ryan said there
were a number of issues to work out, including how much to charge. "But I
think we'll see such a service by the end of next year."

"And that's where this gets interesting," he added. "You've got a portable
music player that can fit 10,000 songs on it? Come on. No one will spend $1
a track filling it.''

But portable players, he said, "become totally useful'' when it is possible
to rent an unlimited number of tracks for a flat fee. Mr. Ryan and other
executives said consumers would also enjoy a greater range of tracks next
year, as the download sites expand beyond pop music, and as artists migrate
toward a growing revenue opportunity. Classical and jazz tracks will begin
to proliferate, and Mr. Ryan said, live, archived performances from popular
musicians will see new life online.

Sony would not say whether it planned to release sets of Mr. Dylan's live
shows or of Yo-Yo Ma's less mainstream recordings. But Philip Wiser, Sony
Music Entertainment's chief technology officer, said, "We will see more
tracks go straight to digital."

Mr. Wiser said the expanding range of music would coincide with the growing
number of devices consumers will use for playing digital downloads. "It'll
move outside the study and into the living room," he said.

Sony's RoomLink, for example, is a $200 device that wirelessly connects a
Sony Vaio computer to a television, so users can play downloaded tracks over
their home theater systems, among other things.

Other computer makers and consumer electronics companies sell competing
devices or are working on them. Sometimes the devices are marketed alongside
specific online music stores. Napster, for instance, rolled out the Samsung
Napster MP3 player this fall. It directly connects to the Napster download
service and includes an FM transmitter for listening to burned tracks.

As manufacturers push the prices of portable devices ever lower - the Dell
Digital Jukebox is among the cheapest, at $250 - digital music services will
attract more mainstream users. "A key underlying driver of our business will
be the expansion of the consumer's ability to make music portable,"
Napster's president, Michael Bebel, said.

Music owners will also have more flexibility in what to do with the tracks
they download, said John Rose, executive vice president of EMI.

"Two or three years out, I'll be able to send you an album that you can
listen to once or twice, but that will expire after a certain amount of time
if you don't buy it," Mr. Rose said. "The technologies are all starting to
percolate. We'll start to see much more of that come to market in the next
year."