Image: Jagger Performs During Rolling Stones' Hot Licks Tour At Twickenham Stadium In London
Mick Jagger performs during the Rolling Stones' Hot Licks tour at Twickenham Stadium in London Sunday. The rock legends recently agreed to allow their music to be sold online.
By
CNBC
updated 8/28/2003 10:57:47 AM ET 2003-08-28T14:57:47

The music industry sings its own praises at the MTV music awards tonight, but it won’t be able to drown out the growing chorus of problems facing the major record labels.

AS TOP RECORDING artists hand out golden astronauts to each other on stage tonight, lawyers for the labels are handing out subpoenas to Internet service providers, demanding the names of thousands of people accused of stealing music off the Web.

According to data from market-research firm NPD Group, illegal music downloads have fallen by more than 20 percent from their peak since the industry’s legal assault.

But CD sales continue to slide, falling another 9 percent in 2002 and the industry estimates it’s still losing about $300 million a year to piracy.

Counterfeit CDs are another big headache for the labels: 5.5 million of them were sold in the U.S. last year — a billion of them world wide — representing another 4 and a half billion dollars in lost sales.

Perhaps the most troubling trend though is a sudden drop in sales from the back catalog, record albums that have been out for three years or more. These titles generate roughly 25 percent of the industry’s sales and have helped offset the recent slowdown in sales of new music.

Back-catalog sales are down 11 percent this year — some of that may be due to piracy — but some of it may also be due to the disappearance of so many record stores, which is where most people over the age of 36 typically buy their music.

The one bright spot in the industry right now, is that legitimate online music services — like apple’s iTunes and Real Network’s Rhapsody are starting to take off, and the industry is finally waking up to what Raymond James & Associates analyst Phil Leigh calls a major paradigm shift.

“The shift in the paradigm is not just about Internet distribution per se,” Leigh says. “It’s also about the fact that the consumer likes to take control of her music on her own PC. She may not want to listen to it there exclusively but she wants to have it in a library so that she can then burn the tracks to CD in any sequence that she herself prefers.”

There will be more legitimate online music offerings by the end of the year, and now that the Rolling Stones have agreed to sell their songs over the Internet, other artists are expected to be more willing to follow them and take the plunge. But after a year of massive layoffs, many in the music business remain downbeat about the short term outlook and some predict another round of consolidation which could take us from 5 major labels down to three and eventually maybe just two.

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