Universal, Sony Dropping Download Prices

It's still too early in the game to guess what a profitable music download business might look like, but it's clear that it won't involve highly restricted access—or high prices.

Sony Music Entertainment and Universal Music Group both acknowledged this marketplace reality in early June, announcing price reductions for tunes downloaded on the Internet. This summer, UMG, in partnership with Liquid Audio, will offer single tracks for 99 cents each, and full albums for $9.99—with the capability of transfer to MP3 players and other portable devices. Sony will drop its price per track to $1.49, and Warner Music Group, a division of AOL Time Warner, is reportedly experimenting with affordable downloads that will be burnable to CD-R. No timetable was announced for the price reductions, but a Sony Music spokesperson did say they would be instituted "shortly."

Sony and UMG are partners in pressplay, a music download service launched this year. MusicNet, a similar service backed by Warner Music Group, Bertelsmann's BMG, and EMI Recorded Music, has yet to make a move toward loosening restrictions on its downloadable tunes, which can't be transferred off a user's hard drive. Pressplay does allow its subscribers to transfer some of their downloads to other devices. EMI is participating with Liquid Audio and Diamond Multimedia, maker of the popular Rio MP3 player, in a trial run of a service called BurnItFirst.com that allows users to transfer audio files to portable players or burn them onto CD-Rs.

Redwood City, CA–based Liquid Audio is one of the few online music sources that have been legitimate from the beginning, having signed distribution agreements with copyright holders when most other startups were offering free music. Liquid Audio's service provides secure digital music to many retailers, among them Amazon.com, Barnes & Noble, BestBuy.com, CDNow, Sam Goody, and Sony Music Club. Many music startups that arose at the same time as Liquid Audio have been neutered by buyouts or forced out of business by the cost of fighting copyright infringement lawsuits. Near-legendary Napster recently declared bankruptcy at the end of protracted litigation, as it was being acquired by German media conglomerate Bertelsmann.

Traditional music retailers are worried about being cut out of the distribution chain as the music industry moves to a direct-sales model. Brick-and-mortar businesses will never disappear, but their role seems destined to diminish as the Internet grows.