FORECAST: SONG COSTS MAY FALL LIKE RAIN

As residents of the Gulf Coast were reminded last week, there's no turning away nature. You can't pass a law that snuffs a hurricane at the border. You can't sue it. You've got to understand it, and make the right plans to deal with it. Technology generates its own form of nature, a set of conditions that enforce an artificial, yet equally unstoppable, reality. With the Internet, fast computers, cheap storage and high bandwidth, it's now just a fact that digital files--be they documents, images or Hoobastank tunes--can be sped through the ether with ease, a phenomenon no easier to halt than a storm surge.

That's why it's so fascinating to watch the music industry's efforts to claim some high ground in its fight against piracy. For the longest time, the labels viewed digital music as something that could hurt them with hurricane force but made no efforts to adjust to this new reality, let alone exploit it. Finally, they were persuaded to license their works to online music sellers. Apple's iTunes Store, which sells songs for 99 cents a shot, became a template for a mini-industry that clearly represents the future of music. Microsoft opened its own long-awaited online outlet earlier this month. And just last week Yahoo dropped $160 million to buy Musicmatch and its store.

This summer provided a clue to further harnessing the force of digital nature. For three weeks, Real Networks tried to lure new customers by slashing prices to 49 cents a song and $4.99 per album. Since Real paid the full royalty load to the labels (almost 70 cents a tune), the company lost money on every transaction. CEO Rob Glaser says that the company did get new customers, but here's the real news: Real sold six times as much music and took in three times as much money.

This reflected the experience of Audible, which sells audiobooks on the iTunes Store. Working in conjunction with publishers and Apple, Audible offered some online titles at a fraction of the normal price. One of those buyers was me--I had been thinking of getting a David Sedaris audiobook to entertain my family on a summer drive, but balked at paying $11 for something I might play just once. After I got an e-mail informing me I could get it for $2, I snapped it up. Audible CEO Don Katz says the featured books on that single e-mail were downloaded at 60 times the previous rate.

OK, you already knew that people like to buy stuff at lower prices. But the labels should understand that the nature of the digital world rewards price cutting much more than in the physical world. With CDs there's cost involved to manufacture every unit; trucks must move the goods, and retailers return unsold items. Digital has none of these obstacles.

Lower prices won't happen unless labels and artists agree to smaller royalty fees per song. But this version of the Monty Hall Problem isn't too tough to crack. Behind Door One is the money you can make by selling a million copies of a tune. Behind the other door is the money to be reaped by selling 6 million copies at half the price. Do the math, guys!

What's more, the benefits of low price and wider distribution don't stop there. When you've got more people buying music, you grow your fan base and encourage experimentation. And the lower prices go, the less reason there is to get pirated songs.

But instead of embracing this idea, the labels are either standing pat or, by some accounts, figuring out ways to raise the price of online music. So far, 99 cents for singles is holding firm, but at the labels' insistence, some albums now cost more than the standard $9.99. The idea, one insider explained to me, is to uphold the "perceived value" of music.

Right now this makes some sense, since the huge bulk of revenues are still in CD sales. But eventually, this stance falls apart because of the persistent presence of file-sharing services where the perceived value of music is zero. It's a fact of nature: the best way to serve music lovers, as well as the most effective method to curtail piracy, is to go cheap and sell tons of songs. If the moguls don't see this, they're as deep in denial as those stubborn souls who refuse to evacuate shoreline bungalows in the path of a Category 5.