Opportunity for ISPs to Sell Music Online

A new study by Jupiter Research says that ISP customers would be willing to pay premium prices for music downloads under certain conditions.

by Peter Sargent Senior Analyst at Jupiter Research [April 10, 2003]

MSN, AOL, and other ISPs continue to look for distribution deals with some of the premier online music services (e.g. PressPlay, MusicNet, and Listen.com) in an effort to attract new customers while reducing churn in the hyper-competitive ISP market.

According to a recent study by Jupiter Research, part of Jupitermedia, the parent company of this website ("Consumer Attitudes Towards Digital Rights & Content Ownership"), success will ultimately depend on product pricing and the creation of an environment that allows consumers to freely consume the music they buy as they see fit, across any device.

With file sharing applications and CD-ripping devices readily available to most consumers, distributors must develop a set of music packages that resonate with their customers. Otherwise, users will continue to gravitate towards Kazaa, Morpheus, and other file sharing applications to acquire digital music for free.

Jupiter's study is the first to actually quantify online consumer demand for digital music products at specific prices, and how demand fluctuates with the extent to which consumers are free to copy the music they buy online to other non-PC devices (e.g. portable players, CD).

Introduce à-la-carte pricing to today's offerings
The predominance of today's online music offerings is subscription-based. For example, AOL offers three monthly packages through its deal with MusicNet. At $3.95 per month, the "Basic" package includes twenty streams and twenty downloads every 30 days. The "Standard" level includes unlimited streaming and downloading for $8.95 per month. Only the "Premium" package offers the ability copy music off of your PC. For $17.95 per month, consumers get unlimited streaming and downloading plus the ability to burn up to ten songs to CD. The challenge for AOL will be to convince its customers to pay up to $18 atop their existing monthly access fees for a limited amount of untethered (free to be copied off of the PC) music.

Some distributors have begun to introduce single song downloads for $0.99. Often, these songs cannot be copied off of the user's PC. However, if AOL MusicNet, for instance, allowed users to store copies of downloaded music on CDs or portable devices like the iPod, the company would enhance the consumer value proposition while also augmenting existing subscription revenues.

Consumers will pay a premium to copy their music
Introducing untethered songs would dramatically increase consumer demand over music that is restricted to the PC. In fact, online consumers indicated they are willing to pay significantly more than $0.99 for a single song, if it could then be copied off of the PC. For single song downloads (which are relatively new to the market, and are historically restricted from extensive copying), this signifies an opportunity to charge consumers a premium for the ability to copy their music.

Online music products
With the industry settling in on a price point of $0.99 per download, Jupiter's report recommends online music distributors sell tethered singles at $0.99 and look to introduce untethered downloads at premium prices. If you guarantee high sound quality and virus-free downloads at such prices, consumers (even file sharers) will purchase a-la-carte downloads.

— End