Mark Mulligan, Jupiterresarch's respected music analyst, explained to us that their mode of research focuses "top-down" on consumer behavior, on projecting the number of users who will purchase any content online at all, even if some or most of their online content consumption is through free sources.  This contrasts with previous research models, which focused "bottom-up" on revenue from and users of specific business models (such as paid permanent downloads, subscription services, etc.) and tended to overestimate the market.

Jupterresearch's findings seem counterintuitive to us.  One way of explaining these numbers is to understand what they do not say: that any of those 19% of internet users will buy all, most, or even some content online.  They may well consume most of their online content for free and only pay for, say, the occasional iTunes download after hearing hundreds of songs on last.fm or imeem (or downloading MP3s from illegal file-sharing networks). 

The research results are easier to justify given that proviso, but even then, they don't reflect industry dynamics that would call them into question.  On practically a weekly basis, new online content models appear that give away more content for less money.  Music industry executives like to say that they want to guard against the erosion of consumers' perceived value of music and to stand fast against the "end game" of giving away unlimited legal permanent downloads as well as interactive streams of music for free.

Well, we remember when the major record companies stood fast against giving up DRM.  Step by step, inch by inch, the music industry is approaching the end game.  The pace is increasing, and the UK is leading the way in Europe. 

We reported last week on Datz Music Lounge, which sells a year's worth of unlimited MP3 downloads for GBP 100.  This week We7, the UK-based site co-founded by Peter Gabriel, announced that it is moving to a MySpace Music-like model of unlimited free on-demand streaming with contextual ad support.  We7 had previously tried DRM-free downloads with prepended audio ads. 

Each one of these new developments represents third parties willing to pay large sums to attract internet audiences; one sure way to draw traffic is to offer more content for less money than existing services.  The record companies, torn between their longer-term ideals and Wall Street-driven demands for short-term revenue, inevitably opt for the latter; even if some of them hold out, once one of them (usually Universal Music Group, the largest) does it, the others will inevitably follow.  To us, the question is not if the end game will arrive, it's when.