Music Industry Must Embrace The Net, Says Study

The late Napster blazed a trail for online music providers and there is no sign that file sharing is declining in popularity. with over 18% of internet users still involved in illegal file sharing. Kazaa is one of the most active media communities on the net, a vast repository of audio, video, images, documents and software files with around 3-4 million users connected at any given time.

The downloading craze has been stimulated by broadband which allows data to be to be transferred from the web to a home computer in a matter of seconds (see Broadband Driving Up Online Music Downloads). However, major record companies have been in no position to take advantage of this because of a reluctance to make content available online.

Last week, the International Federation of the Phonographic Industry blamed CD piracy and downloading for the 7% decline in music sales in 2002. It is estimated that the number of music files on pirate sites has doubled to over a billion in the past year and the Recording Industry Association of America (RIAA) is preparing evidence and lawsuits against large-scale uploaders of copyrighted music.

However, this may not tell the whole story and analysts have been at pains to point out other factors that have had a derogatory effect on music sales (see Digital The Way Ahead For Music Business, Says Forrester). These include the economic climate, competition from video games and DVDs and the apparent dearth of quality music coming out of the major labels.

Music companies miss the beat Another issue that had been overshadowed by recriminations and threats of legal action is the fact that downloaders are heavy spenders on music. A recent survey by Music Research and Programming found that 87% of music loving 13-45 year olds who downloaded material would still buy albums when they were commercially released.

A total of 91 per cent of file-sharers download individual tracks, but more than two-thirds go on to buy the album, with even the heaviest downloaders saying they like to own real CDs. Evidently, online music has a ‘try before you buy’ value that record companies would do well to acknowledge.

Jupiter describes 2002 as a year of “missed opportunity” as the music industry failed to grant the type of licences to legitimate online music services that would have enabled them to compete with illegal file sharing services.

The research firm is more hopeful this year as labels are making more of their catalogue available for digital distribution and over half of BSPs interviewed intend to launch a music service this year. However, years of inactivity have taken their toll and legal music providers will have to offer compelling content and show patience before the money starts to flow.

“Despite the optimism of BSPs, our research demonstrates that consumer revenues from the online music industry are likely to remain small in the near term,” said Mark Mulligan, senior analyst at Jupiter Research. “The real value of music services for BSPs though, lies in reducing churn and improving consumer satisfaction as part of a wider content strategy. However, until real co-operation exists between BSPs and the music industry consumers, illegal file sharing will continue to hinder uptake of legitimate music services.”