What iTunes does not reduce are the search costs incurred by a user. If a user isn't planning on purchasing what is on the top ten list, a user has to know what he wants beforehand at iTunes, just like shopping at a Virgin Megastore. So before a purchase is made, a user still has to pay search costs to find what he wants before he makes a purchase.
So as you said, you would go to Pandora or last.fm instead of illegal downloads to find new music and when the new "good" song is discovered, you go to iTunes to purchase it. In this situation, Pandora and last.fm decrease your search costs by presenting what you found to be a "good" song in less time than it would have taken you to find a "good" song on your own. So as long as Pandora and last.fm can reduce your search costs enough so that the value of the "good" song outweighs the cost, then Pandora and last.fm replace the record companies as better agents and you derive more value from your music.
But are Last.fm and Pandora good enough agents for everyone? Or do they really only work as good agents for some people (i.e. better solutions exist)? For example, record companies can and do play a strong hand in determining the results on Last.fm. As long as there are mass-media outlets like the radio and MTV, record companies can influence the "tastes" of mass numbers of people, which influence what music they play and share on file networks, which influence dramatically the scrobbling statistics on Last.fm and the recommendations Last.fm produces with its collaborative filter, skewing results dramatically and consistently toward major label artists: getting results of mainstream artists on Last.fm does not reduce search costs as these artists were easy to find regardless.
It seems to me that the search costs for discovering music on Pandora are also very high, as I have to listen to Pandora like a radio station as opposed to just getting results, and the database is set-up by what musicologists think. Sure the sonic characteristics and structure of a song influence the song, but it doesn't determine whether I will think it is "good". As an extreme example, take two piano sonatas: one is written by Chopin, the other by Tom Dick last week in Ohio. A musicologist at Pandora would classify them the same as they have the same sonic characteristics, arrangement, instrumentation, structure etc. but that does not help me reduce my search costs because I still have to listen to Tom Dick's sonata on their web radio before I get to Chopin.
I think audiences that consume a lot of music could significantly reduce their search costs on a site like oink, because everyone there consumes a lot of music. Because everyone in the community is always on the hunt for the new "good" music (and are technologically savvy), their top ten lists are predictably very relevant to their community, probably much higher than any of them would ever find on Pandora or Last.fm.
So as you said, you would go to Pandora or last.fm instead of illegal downloads to find new music and when the new "good" song is discovered, you go to iTunes to purchase it. In this situation, Pandora and last.fm decrease your search costs by presenting what you found to be a "good" song in less time than it would have taken you to find a "good" song on your own. So as long as Pandora and last.fm can reduce your search costs enough so that the value of the "good" song outweighs the cost, then Pandora and last.fm replace the record companies as better agents and you derive more value from your music.
But are Last.fm and Pandora good enough agents for everyone? Or do they really only work as good agents for some people (i.e. better solutions exist)? For example, record companies can and do play a strong hand in determining the results on Last.fm. As long as there are mass-media outlets like the radio and MTV, record companies can influence the "tastes" of mass numbers of people, which influence what music they play and share on file networks, which influence dramatically the scrobbling statistics on Last.fm and the recommendations Last.fm produces with its collaborative filter, skewing results dramatically and consistently toward major label artists: getting results of mainstream artists on Last.fm does not reduce search costs as these artists were easy to find regardless.
It seems to me that the search costs for discovering music on Pandora are also very high, as I have to listen to Pandora like a radio station as opposed to just getting results, and the database is set-up by what musicologists think. Sure the sonic characteristics and structure of a song influence the song, but it doesn't determine whether I will think it is "good". As an extreme example, take two piano sonatas: one is written by Chopin, the other by Tom Dick last week in Ohio. A musicologist at Pandora would classify them the same as they have the same sonic characteristics, arrangement, instrumentation, structure etc. but that does not help me reduce my search costs because I still have to listen to Tom Dick's sonata on their web radio before I get to Chopin.
I think audiences that consume a lot of music could significantly reduce their search costs on a site like oink, because everyone there consumes a lot of music. Because everyone in the community is always on the hunt for the new "good" music (and are technologically savvy), their top ten lists are predictably very relevant to their community, probably much higher than any of them would ever find on Pandora or Last.fm.