[Here is a comment which Paul Sanders emailed to me. I’m posting it with his permission and under his name. -Lucas]
I think you are missing a few angles on this.
1. Higher prices force more discrimination, which pushes revenue up the popularity curve. With lower discrimination the same money might well be spread more thinly. The owners of the ‘must have’ tracks will be able to exploit this and thus indirectly drive down compensation for the rest of the market. This is already a feature of negotiations with the ad-funded businesses that want to use music. I am reliably informed that iTunes actually concentrates revenue more than physical shelving used to in the days of big stores. I don’t know how small racks in supermarkets compare.
2. The web does not require frictionless transactions – as anyone who tries to look at people on MySpace or Facebook without logging in can tell you. Minimal necessary friction does seem to be a reasonable strategy – but the necessity is not defined by the consumer but by businesses that are actually seeking to make money. Another way to look at this is to think how Google requires content to be created and organised in order to get maximum penetration and effectiveness for the AdSense/AdWords platform – massively distributed, highly targeted, unpaid, and ultimately unsatisfactory short articles, and no effective organisations among the creators of them to provide a negotiating counterweight. Bingo. Blogs.
3. All consumer uses of music are licensable – and I am hopeful that this year I’ll be among the crowd who prove it to the skeptics! In one of my ventures we have managed to put a value proposition together that beats the paid for download model in total returns to the music industry across a given market, and is interesting to ISPs getting out of the more for less competitive spiral. The reason we have been able to do this is the high value that a reasonable proportion of people place on music – provided that it is delivered in a way that suits them. With iTunes flatlining in some territories the residual optimism that the right mix of models can exclude licensing filesharing seems to be seriously on the wane in the UK and elsewhere. YMMV.
My conclusion – don’t let new entrants force consumers to pay less than they want to for services that don’t meet their full expectations, at the expense of a more comprehensive approach that rewards the value added. If iMeem can more effectively than anyone else monetise the organisational tools they offer around music then that is great and they should be rewarded for it. But we do need to remain aware that iMeem is pricing the attention for the advertiser, not the music for the consumer, and people seem to be making the assumption that you can’t do both, which to my mind is complete nonsense!