July 21, 2000

Study Says That Napster Increases Music Sales

By REUTERS

DIGITAL MUSIC IN DEPTH Music on the Net RECENT NEWS Movies Added to Music Dispute (July 21, 2000) FORUM Ban Napster?

EW YORK -- Users of Napster software, which allows users to share digital music files, are more likely to buy more records than non-Napster users, according to a study issued Friday by research firm Jupiter Communications Inc.

"Because Napster users are music enthusiasts, it's logical to believe that they are more likely ... to increase their music spending in the future," said Jupiter analyst Aram Sinnreich. "But when we conducted our consumer survey, ... we still found that Napster usage is one of the strongest determinants of increased music buying."

The study comes against the backdrop of a war between Napster and the music industry trade group Recording Industry Association of America, which claims that such software are tools to pirate digital music.

Such issues have come to the forefront amid the popularity of MP3 files, which is a format that allows users to store music on their personal computers in small packets of data.

Among the arguments the RIAA makes is that Napster is responsible for the decline of music sales among college students, who make up a sizable portion of the software's users.

"An inherent flaw in the RIAA's argument against Napster is that the association's supporting research shows a decline in record sales in college areas, with high Napster usage," Sinnreich said.

"However, the RIAA did not clarify that the most attrition took place before Napster's launch, and the analysis did not account for channel shift to online transactions that would have occurred independent of Napster's existence," he added.

Napster software allows users that are logged onto the Internet to see what MP3 files other Napster users have stored in their computers. Using the software, users can search and download songs from other people's computers.

On Thursday, the RIAA launched a lawsuit against Scour.com, a company that offers similar services for movies as well as music. The company is backed by high-profile talent agent and former Disney Co.executive Michael Ovitz.

Instead of resorting to litigation, "the labels have to get on the ball and start licensing out their catalogs to service providers that are going to provide a legitimate alternative to (Napster)," Sinnreich told Reuters in an interview.

"The labels are absolutely ridiculous to come crying to the courts ... when they haven't put anything out there themselves that consumers can have an alternative to," he added.

Some labels have already begun to offer digital versions of their songs for download. Sony Music Entertainment, for example, sells digital downloads on its Web site (http://thestore.sonymusic.com) of many of its artists, like Billy Joel, Jennifer Lopez and Lauren Hill.

EMI Group Plcreleased 100 albums for digital download this week by artists like Frank Sinatra, Snoop Dogg and Bonnie Raitt through Microsoft Corp.'s Windows Media Player.

Sony and Seagram Co.'sUniversal Music Group plan to jointly offer a digital music subscription service. The other major labels, Time Warner's Warner Music Group and Bertelsmann AG'sBMG and Universal also plan to release digital downloads later this year.

But by most accounts, the record industry has been moving cautiously into the digital download arena, for fear of alienating the traditional retailers, which still account for the vast majority of music sales.

"It's not as easy as just throwing your entire catalog online," said one executive familiar with the labels' thinking.

"Piracy is not the only issue," he said. "But the traditional retailers will scream if they perceive the labels are trying to cut them out of loop. And like it or not, that's still where labels sell most of their product. They can't afford to alienate the retailers."

Jupiter's Sinnreich acknowledged the importance of the traditional retailers. "But the consumer data we have proves that all online music activity drives more purchases, not just online spending, but traditional retailers, as well."

Sinnreich said the labels have an opportunity to take users away from Napster, if they begin to offer added services and guarantees that network file-sharing software can't.

"We asked consumers, 'what would compel you to pay for a music subscription on the Web,"' Sinnreich said. "And the two most mentioned features are guaranteed file quality and virus protection. Those really point to the shortcomings of Napster.

"But if consumers know that the Britney Spears song they're downloading won't a) sound like a transistor radio and b) melt their hard drive, or if they have someone to blame if either of those things happen, consumers will want to come over to legitimate channels of distribution."

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