OMING 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.''
