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With a blanket license, will CDs get cheaper?

Or dearer. Or disappear?

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So last year's " Future of Music™", the DRM-encumbered digital downloads model pioneered by Apple, has stalled. What now?

After reading our take on it, Sava Zxivanovich has a very good question.

"Does blanket licensing mean that CDs and DVDs will be cheaper? We buy them a lot."

A blanket license for digital music, now being considered by labels (big and small), songwriters and performers, gives you the right to exchange music freely over computer networks - for a small fee. The pool of money is then divided up according to the exchanges, and returned to rights holders. The model operates today in many situations where it's too onerous to count, let alone restrict the exchanges taking place: such as for radio, and music played in pubs and shopping malls, for example.

When it's introduced, it will result in some pretty dramatic transformations, as you'll be able to walk past a cafe or store and "collect" the music on your phone, and carry on using P2P networks legally - without the nuisance of DRM or threat of RIAA stormtroopers.

It won't, however, mean you can embark on a trolley dash through the nearest Virgin Records megastore. But with such an abundance of music available on tap digitally, who'd even want to go near one? From what we know, how can we predict a future for physical product - what it will look like, and what it will cost?

Speaking to us recently, blanket license advocate Peter Jenner suggested that CDs will go up in price as a consequence of a P2P flat fee. The thinking is that most people will get most of the musical satisfaction via a phone or their PC (some other form of "broadband" service, such as interactive cable, recordable radio, or IPTV) - leaving physical "things" as a market niche. As the mass market for CDs dries up, so the logic goes, producing CDs becomes more expensive - increasing the cost, and therefore the price.

That's certainly one way of looking at it. But one observation we can make about the last decade is how actually resilient CD sales have been. First let's tackle the scale of physical and digital music.

The IFPI pegs the size of the global music market at $33.6bn last year, down from $40.6bn in 1999. But the biggest fall took place between 2002 and 2003, when the USA, Japan and the Eurozone were enduring stagnant economies. Overall, that's 17.6 per cent down.

Legal digital downloads will gross around $500m this year in the US. But "illegal" digital downloads, according to Big Champagne, which analyses P2P exchanges, exceed DRM downloads by a factor of 10:1.

Now not every P2P download is a foregone purchase. Many are acts of "exploration", as Jenner described it recently. But the industry extrapolates that if every P2P exchange was monetized, it would be where we left it in 1999, before the growth of broadband and 3G.

We caution against making that calculation, and add an obvious caveat. If the big four labels had set the agenda by introducing a blanket license a decade ago, rather than being dragged to the table because all other options have been exhausted, they might be in a rather better position than they are now to exploit digital exchanges. In other words, they've incurred opportunity costs over and above what they claim to have lost through P2P. This is a side note, but it's worth remembering in the months ahead.

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