Who’s making money on music downloads?

According to The Independent, record companies take a substantial cut of royalties from online music. This is making the online sale of music unprofitable for many sites, and will force some out of business.

According to the article, US figures show that iTunes gets 4 cents from each 99 cent track sale, music publishers get about 8 cents, while “mechanical copyright” holders – generally the record labels – take 62 cents or more. Copyright owners have doubled their share of royalties, even though most manufacturing costs have been eliminated.

This should embarrass the record companies. Instead of trying to encourage legal downoading of music, they see it as yet another cash cow, where they can make twice as much as they did before, without the bother of manufacturing or distribution costs.

It is unfortunate that there is currently no model for artist direct music sales, eliminating the record companies from equation. This would also create a new market for music marketing companies which could do the PR job that the record companies are now doing for much less money.

As for finding new talent, I’m not so sure that the record companies are all that great at that anyway. Perhaps we are reaching the point where word of mouth (or blog or web) is more efficient.