One day after Kevin Britten of Kansas downloaded the 100 millionth song purchased from Apple's iTunes music store, eBay announced it was joining Apple, Napster, Real.com and other services by offering music digital downloads on its site. eBay's pilot program in the Music category will be limited to pre-approved sellers of downloadable digital music files.

JupiterResearch says digital music sales will more than double this year, but with tight margins for 99-cent music downloads, observers are wondering what the potential is for eBay sellers.

JupiterResearch presented its latest music forecast this week at the Jupiter Plug.IN conference (http://www.jupiterevents.com/plugin/summer04/). It predicts digital music sales will more than double compared to last year, reaching more than $270 million in 2004, and will grow rapidly to $1.7 billion in 2009, totaling 12% of consumer music spending.

But exactly how eBay will fit into the market remains to be seen. eBay said in its announcement that approved sellers are rights-owners or have contractual permission from rights-owners to resell the listed media, and buyers cannot re-list or resell the media on eBay. The pilot will run for 180 days, and the listings are expected to begin appearing in the category this week or next. eBay's spokesperson Hani Durzy declined to reveal the names of the approved sellers.

With music digital downloads priced at between 79 - 99 cents on sites like Napster, Real.com and even Walmart.com, margins might be thin on the online auction site. eBay listing fees start at 30 cents for auctions, or 2 cents for Store listings (which don't show up in eBay.com search results).

Insertion fees for Dutch Auctions or multiple-quantity fixed-price listings are capped at $4.80. But add in eBay's commission fees, licensing fees to music publishers, and payment processing fees, and it's hard to see how sellers could make much on eBay sales. Durzy declined to discuss the fees eBay was charging participants in the pilot program.

IDC Research Director for Content Management & Rich Media Joshua Duhl said, "perhaps it is the access to the audience through eBay that is appealing, like having a store in the big mall. Sell the stuff through every possible venue." Duhl said people will flock to the best spot or cheapest spot on the net to buy the same content unless they don't know about it or are locked into proprietary device and file format.

eBay's online payment service is also trying to get in on the market for music downloads. In a press release issued by PayPal last December, the company announced new micro-payment processing fees for high-volume online digital music companies of 2.5% plus $0.09 for each transaction. In that release, PayPal said online music companies license songs from publishers for approximately 65-80 cents each.

Things might also be tricky on the demand side once buyers realize how much they are paying for all their downloads. Rafat Ali, Editor and Publisher of PaidContent.org (http://www.paidcontent.org), said he has seen "sticker shock" syndrome with digital markets such as the SMS text-messaging market. "Initially the market moves rapidly into the whole thing, it's an early-adopter market. But after a while, it sort of settles down, and then flat rate packages take over. That's how the market evolution happens."

JupiterResearch predicts that over time, revenues for digital subscription services will outpace those of digital download, which in the near-term will remain a market for potential buyers to sample music before purchasing the actual CD. Napster and Real offer subscription services for $9.95/month where users get on-demand access to over 700,000 songs (but are not allowed to burn them onto CDs).

Consumer perception of eBay could also have an impact on its efforts in the digital download space. Susan Kevorkian, Senior Research Analyst with IDC's Consumer Markets research team, said, "eBay is associated with second-hand sales, and individuals re-selling their own items. But under this arrangement, individual online music buyers won't have an opportunity to sell their downloads, which is only more confusing. I think most consumers, when they hear that eBay is starting to offer digital music, will assume that it's a chance to sell downloaded songs that they don't want anymore."

eBay's Durzy said the pilot program is designed to see if the community even wants to use it, and will evaluate the program as it progresses. eBay's first phase of its pilot program to test software downloads recently concluded. Durzy said eBay is still analyzing how it went, and the program's lone approved seller, Digital River, will continue with to sell software through the pilot for an undetermined amount of time.

eBay sellers often find the site is best for rare or unique items, or as part of a new-customer acquisition strategy or liquidation efforts. Translating this experience to digital downloads, could this mean artists would create unique recordings exclusively for eBay? Could it mean Apple and Napster might eventually want an eBay presence for marketing purposes?

Stay tuned to find out if this is eBay's warm-up act or a one-hit wonder.