According to the New York Times, the scheme, being tried out by Ruckus Network, makes money for the music business by flogging adverts.
The advertising is placed on the outfit's website and on the software used to download the MP3s. The four major record labels and several independent labels have agreed to flog the music through Ruckus at a much cheaper rate knowing that students will simply illegally download the music if they are charged directly.
Although there are about 100 "schools" which are participating in the scheme, one of the downsides of the project is that it requires universities to install a Ruckus server on their networks. Some universities have not been so happy to do this.
Of course the music will not play on the iPod or the Zune which both are running proprietary formats. More here. ยต