With the current state of online music services, offering three types of business models:

• The a la carte approach, favored by the likes of iTunes. Customers can buy individual tracks for 79 cents to $1.20 or albums for $9.99 and up, and buy as few or as many tracks as they want. They can–after downloading music to their hard drives–burn it to CDs, copy it to portable music players or, if they have the right equipment, stream it around the house by way of their existing entertainment centers.
• The subscription model. Customers pay a monthly fee and then download a specified number of songs each month. For $9.99 a month, emusic lets its customers download 40 songs and use them in whatever way the buyers want. For $14.99, customers get 65 songs.
• The streaming model, such as the one used by RealNetworks’ Rhapsody. Music lovers pay a monthly fee, then listen to as many songs a month as they can stand. Downloading is extra, usually under a dollar a track.

Industry analysts, interviewed by Knowledge@Wharton, believe that the streaming subscription base model is the most profitable to service providers and the most satisfying to consumers. Reason being, online music services make pennies in profit when selling music downloads–$0.79 to the record company, $0.05 for credit card processing, $0.15 left in profit for the music service. “By contrast, the streaming services pay the music industry less in copyright fees–as little as 1 cent or less each time a song is played–because the ownership of songs that are streamed but not downloaded does not pass to consumers.” Consumers also win, because they don’t have deal with the hassles of downloading music and giving up valuable hard drive space to store their library of music–but are still offered the opportunity to pay for downloads, if they wish. In any case, there are pros and cons to each model, but most likely all three business models (and maybe one we haven’t seen yet) will remain viable and cater to the varying tastes of consumer preference. MORE »

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