These days, a significant percentage of consumers obtain digitally-recorded music online. But the industry’s revenue levels continue to suffer because so many consumers engage in illegitimate file sharing. Of course, this problem is not new. Consumers have long been trained to believe that much of the  information, video and music presented online is free. The other problem in the economics of online music sales is that ad-supported sites are now competing with fee-based sites for consumer attention.1212781_bass_guitar_player

According to Tempo, the Ipsos study of how consumers obtain digital music, the current channels break out as follows:

  • Fee-based iTunes 16%
  • Fee-based Rhapsody 3%
  • Ad-supported MySpace 22%
  • Free Peer to peer 32%
  • None 27%

The Ipsos study found that if peer-to-peer file sharing  “somehow” became unavailable, ad-supported sites would gain a large percentage of users. However, the analysts suggest that new traffic at the ad-supported sites would come from users who have not yet ventured online to obtain music or from users who currently use file sharing techniques. In other words, music publishers may find that releasing music to ad-supported sites will bring them additional revenue and will not necessarily cannibalize sites that charge a fee. The analysts believe ‘ad-supported and fee-based approaches to music have roughly equal appeal’.  As channel distribution continues to shift for this industry, marketing music via ad-supported sites may make economic sense for some publishers.

[Source: Ipsos release, July 2009]