Elemental Consulting on pay-per-download songs:

If Amazon has a hard time making money on music priced a little below iTunes standard pricing, how can downloads priced at a fraction of the cost be profitable for indie labels and musicians?

Applying the concept of loss leaders … it logically requires that the download is then just the gateway to other products that the musician will be selling for more money – concert tickets perhaps? Merchandise? These are probably the most common supplemental sales, but the fact of the matter is that the digital song is the most viable sale – possibly the cheapest and easiest to manufacture and distribute. The cost is unaffected by geography, unlike concert tickets where an artist has to physically be somewhere and must pay for his/her travel expenses and that of the band. So I’m not seeing how cheap downloads as a loss leader would really work for the individual artist or small label. I can see cutting the cost of a particular track or album in order to provide the gateway to buy other albums at a higher cost but I just don’t see how a viable business for indies can be made from cut-price downloads.

The use of music as a loss leader is about truly profitable products. Bands selling tracks on Amazon should seek to get a piece of anything the user buys, not just CDs. Taking this to the real world, a comparable deal would be to ask Best Buy for a percentage of the final sale.

So let’s say you’re Michael Jackson and Best Buy is doing a promotion where they give away a copy of “Thriller” to anybody who buys a Halloween costume. You’d ask for a piece of the costume, which has a decent markup, rather than a higher price on the CD.

You’re looking for stuff with a big markup that would move better if it were associated with cultural items like songs. The “Baby You Can Drive My Car” Beatles giveaway at the BMW dealership. Defense contracting. Pharmaceuticals. Software. Dating. Gourmet food. Liquor.