Music's New Supply/Demand Model

"There's been an ongoing push and pull between iTunes and the major labels over a host of issues, including whether the tracks should include DRM, what the price point should be, and who gets to control the general 'productization,'" he explained. "So far Apple has had the upper hand, but that is beginning to change, and the labels will gain in negotiating power over the next few years."

The playing field is growing, after all, with Wal-Mart entering the digital distribution business, and with RealNetworks, Verizon and Viacom partnering up to form an iTunes competitor called Rhapsody America.

The labels have made "major concessions," Sinnreich said, to dislodge iTunes. Consumers can expect to see prices drop, temporarily, as these new competitors try to take market share from Apple. Consumers can also expect to see more DRM-free music, as record labels try to boost iTunes rivals. Currently some labels have given Apple the right to sell its songs DRM-free for $1.29 each.

Once the labels are free to negotiate among many dealers -- not just iTunes and "everyone else," prices may go higher than they are now, and higher than the demand curve may dictate.

"The labels will never relinquish control over pricing to let it do its job," Simmreich predicted. Even their dynamic pricing models show an unwillingness to embrace market forces, he said. "The problem with most of the dynamic pricing that has been suggested by the labels is that it has a floor of 99 cents. At best I can only get iTunes prices."

Sinnreich is less than optimistic about dynamic pricing, for another reason, too. The current song-by-song "a la carte" model of digital distribution, he said, is doomed from the start.

"It's like pumping gas," he explained. "You have room for tens of thousands of songs. Whether you're paying 50 cents or $2.50 for a song, there's no way you're going to pay to fill that thing up. [Labels] have to offer consumers a flat rate, or bulk pricing to allow consumers to continue filling the tank."

For the time being, though, Amie Street will be watched by labels (and their underwriters) for signs of life. As co-founder Boltuch remarked, "The labels that we do have on the site are really happy with the checks that we're cutting them."

Unlike my early days of playing music lotto at the record store, listeners now have very efficient ways of buying new music through technology alternatives. That efficiency is actually helping to support new artists, including several friends of mine, to survive in a business that even a few years ago would not have allowed them to generate revenue.

ABC News contributor Michael Smith is an internationally recognized DJ who has a music-services business. He works with a variety of corporate clients. or

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