Bertorelli, Soho
London, England W1D 4RB

This Think Tank will look into the cost of a download - from the perspective of artists, labels and distributors - and ask, is the price structure right if we want to build a viable long-term sales model and, perhaps more importantly, is the revenue being divided fairly? It will also take into account consumer expectations and attitudes to the pricing - are they getting a fair deal? Or is there a better alternative that can satisfy all parties?

Will we ever convince the consumer that they should pay an equivalent price (or more, if buying the majority of an album as individual per-track-downloads) for a downloaded album as for a physical product? Where is the value? After all, with high-street retailers such as Fopp offering highly desirable CD albums for as little as £3, how can we justify upwards of £8 for the same music, in lower sound quality, without the glossy booklet, when the same data is often also freely (albeit illegally) available over BitTorrent and P2P anyway?

But the perception of free delivery is flawed. Delivering music to the various download services can be costly - each requires digitisation to a different format, with metadata ordered in a different way, and uploaded according to a different procedure. The process often requires hand-holding to avoid error, and this is before considering the promotional effort needed to make sure the track is well highlighted. These costs may be minimal for a sure-fire hit being added to iTunes, but can soon mount up for an indie label trying to make every non-hit album track available on all the various digital retailers.

Nevertheless, while the "Download=Free" perception exists, artists will remain sceptical when labels offer them the same royalty rate that they would get from a physical sale. Even if all the actual costs are appreciated, the argument goes that with downloads, unlike CDs, there are no manufacturing, packaging, or delivery costs, and that there is similarly no need to factor in breakages or returns. In fact, many independent labels (those who aren't operating a 50/50 profit share model) already split turnover from subscriptions services with their artists and pay the maximum contractual royalty rate for one-off downloads, deducting nothing for breakages.

But should these practices be more widespread? Veteran rockers The Allman Brothers and Cheap Trick certainly think so - they have waged an ongoing court battle against Sony BMG, claiming that a download of their music should be treated as a licence, and so pay them a far higher royalty rate. Is there any weight in this "licence" claim, or is it just an attempt to leverage a better share from what is undeniably a sale, albeit with different overheads?

At the same time another Spitzer special is looking into the possibility of labels price-fixing downloads in the US. Even if there were some evidence (e.g. of overuse of "most favoured nation" clauses) some argue that because the 79p per track model unshackles the consumer from the traditional physical single or album format, enabling them to buy just the tracks they want, the margins are still too slim.

However, most agree that a price-hike could kill off a digital market that doesn't yet look ready to take over CDs. While Nielsen Soundscan celebrate a US download market up 2/3 on 2005, a recent Forrester analysis sparked widespread controversy by suggesting that iTunes sales might be dipping or, at the very best, levelling-off.

So if artists and labels aren't making enough from downloads and the market isn't growing fast enough to compensate for lost CD sales, then perhaps an entirely new approach is necessary? Universal has already taken steps to unlock some of the value in the 9,980 tracks on your MP3 player that aren't paid-for downloads by agreeing a fee they will receive for every Zune sold.

Will this creative approach succeed, or will artists and their managers demand something more clear-cut, where they can be assured of receiving their dues? After all, many still await their share of copyright infringement settlements with the likes of Kazaa. The question remains, what is the true cost of a download, and who is benefiting?

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Added by jgohil on January 2, 2007

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