The online-music industry is running on "terrifyingly thin profit margins", with download sites making only a few cents on songs, analysts say.

Inside Digital Media analyst Phil Leigh told TC Palm: "That won't go far in offsetting the expense of setting up the online music stores, at least in the short term."

Leigh compares music download situation to's "years of bleeding red ink while it established itself as the dominant online bookseller".

The report suggests that the real money will be made from selling products associated with music downloads. This proposition is illustrated with Apple who shipped 733,000 iPods in its most recent quarter, generating $256 million in revenue.

But, Leigh added: "Recorded music is a $30 billion business worldwide, and $30 billion is a lot of money."