eMarketer's Editorial Director says kids may be willing to pay for music online, but that doesn’t mean they actually care about buying it.

As a teenager in the late 1970s, I was a semi-obsessed record collector, and I was not alone. Teenage boys tended to judge each other by the extent and focus of their music collections. Deadheads, Punks, Progrockers, Metalheads, Jazz-Fusion snobs -- we knew who we were. Our album collections, carefully arranged on a bookshelf, pretty much summed up our personalities.

Now I have a teenage son of my own, and if I were to define his personality by his music collection, I would call him virtually a blank page. The same goes for his friends. They are every bit as passionate about music as I was, but they don’t much care about lining up CDs on a shelf. In fact, they don’t seem to care about having a collection of music at all. 

What brings this to mind are some recent reports about the digital music business. Research from the Pew Internet and American Life Project finds that 11 percent of U.S. adults (over 18) own a digital music player -- that’s 22 million adults in all. The consumer adoption rate is breathtaking. Little more than a year ago, a Forrester Research poll of more than 60,000 broadband users in North America found that just 2 percent planned to buy a portable MP3 player in the next 12 months. (Around the same time, a survey by New Media Strategies found that 6 percent of respondents had an iPod on their Christmas wish lists.)

Meanwhile, the Online Publishers Association (OPA) says online music sales have fueled a 90 percent increase in the "entertainment/lifestyles" category of paid content, which totaled $413.5 million in 2004. At this rate of growth, music will soon swamp every other form of online consumer content spending.

At the heart of these changes, of course, is Apple Computer. Roughly 10 million iPods had been shipped as of Christmas 2005. And earlier this month, Apple announced that cumulative sales on its iTunes store had surpassed the 300 million song level. Apple dominates the online sales channel for music.

Apple is not the only company registering gains in revenue. The reinvented Napster, now a legit and legal participant in the music retail business with a subscription-based service, recently upped its estimated revenues for the current quarter to $15 million.
 
These are impressive numbers. They may only amount to a mere sliver of the music industry –- roughly a $12 billion business, with CD sales totaling more than 650 million units last year -– but the growth rate suggests that digital music will soon be a significant slice of the pie.

How significant? That will depend on three things: First, will teens and tweens (the most omnivorous of music consumers) buy into the idea that paid downloads are "worth it?" Second, even if they are willing to pay, will they be able to? Finally, and perhaps most importantly, do they care about owning music at all –- or is the whole concept of "ownership" outdated?

The wild west days of P2P extra-legal downloads may be gone, but file sharing is still common, whether on networks or on an individual-to-individual basis. A survey in May 2004 found that more than half of the kids and teens queried had downloaded music without paying for it.

Attitudes about illegal downloading have been slowly shifting. More and more consumers disapprove of it or see it as theft. Still, a large number of teens don’t consider it wrong. 

The figures in the chart above come from polls in 2003 -– when illegal downloading sites were, in essence, the only game in town. The simple availability of a robust and legal application (like iTunes) will help to change consumer perceptions, reducing teen approval of unpaid downloads. (That shift can already be seen in adults: A February Pew survey found that 21 percent of adults who download music files said they use peer-to-peer file sharing software, down from 31 percent a year earlier.)
Nevertheless, teens and tweens can't be online buyers if they can't make online payments. Only 10 percent of teenagers have their own credit cards, according to Teenage Research Unlimited. That helps explain why so many young internet users have not made purchases online. According to Bolt Inc. in a survey in January 2004, 59 percent of users aged 13 to 24 cited "lack of payment method" as a reason for not buying online, by far the most common response.

Apple has done a nice job creating "allowances" to enable younger consumers to make purchases -– and the top selling songs on iTunes make it clear that young buyers are using the site (either that or Baby Boomers are secretly big fans of 50 Cent and The Game). Still, the lack of payment method looms as a huge challenge for digital music.

Finally, there is the question of "ownership." Even for those who shun illegal downloading, there is a huge variety of music that is legally available, often on demand. That makes it hard for the average teenager to see the value in actually taking ownership of a piece of music. There’s no need to own a song to listen to it repeatedly online.

In other words, the tie between ownership and self (my music collection=my personality) has frayed. Young listeners still define themselves by their taste in music, but no longer is that self-definition displayed on a shelf.

So, while it's awfully early to make predictions about a brand new, untested kind of service, the music subscription model seems to fit neatly into the emerging teen music culture. No ownership of music is demanded, and parents don't have to make irregular trips to the computer to approve their children's purchases.

iTunes is a brilliant product and proves that fee-based musical downloading can work. But subscription services could be a better way to capture the most important music consumers of all. Will they opt for the new Napster service? Hard to say, but you have to admit Napster has always had the coolest name and logo.

Ezra Palmer is the editorial director of eMarketer. Unlike his son, he rushed out to buy Beck's new album the day it was released this week.