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msnbc.com

The music industry succeeded in shutting down Napster, but it has failed to even slow free song swapping, new research shows. Some 41 million people traded music online during the first half of 2002, according to San Francisco-based Odyssey research. Worse yet, the increasing popularity of CD burners and portable digital music devices like Apple’s iPod has given consumers yet another way to swap music for free, opening up another hole in the music industry’s leaky copyright dam.

MORE THAN A YEAR has passed since Napster was shut down after a siege of lawsuits by the music industry, and free music seekers are apparently undaunted.

Precise figures are hard to come by, but at its height in February 2001, the file-swapping service boasted over 13 million monthly users, according to Jupiter Media Metrix measurements. As quickly as Napster collapsed, rival services like KaZaa and Morpheus rose to take its place. While hardly earning the name recognition of Napster, the new homes of file swapping are even more popular — KaZaa alone has almost 10 million monthly users, according to comScore Networks, Inc. which now operates Media Metrix.

In the summer of 2000, 39 million Net users swapped music online; one aggressive music industry lawsuit and two years later, that number has grown to 41 million.

“Despite Napster’s demise in the summer of 2001 and the record labels’ efforts to stem the tide of free music downloading, participation in online music activities has not subsided,” said Sean Baenen, managing director of Odyssey. A nationwide study conducted by the firm this summer and released Monday, reveals that 30 percent of U.S. consumers who are online have swapped songs over the Internet in the past six months.

And use of music download sites is surging north of the border in Canada, according to Ipsos-Reid Corp. During the second quarter of 2001, 39 percent of Canadian Internet users said they’d downloaded music. This year, 47 percent indicated they’d downloaded songs — fully one-third said they do so weekly, according to spokesperson Steve Mossop.

INDUSTRY EFFORTS HAVE MIXED SUCCESSThe research calls into question the recording industry’s high-profile efforts to shut down Napster, which succeeding in crippling the dot-com startup, but has failed to slow music downloaders. But Recording Industry Association of America spokesman Jonathon Lamy said the industry averted a much larger problem by stopping Napster in its tracks.

“The problem would have been far worse if we had not stopped Napster. We would have seen far more venture capital companies taking a shot (at P2P sites) if Napster had succeeded,” he said.

Still, the core problem for the music industry remains: the specter of consumers grabbing their music for free rather than paying for it at the mall. Music sales are down about 10 percent this year, Lamy said, and part of the drop can be blamed on the availability of free music. Odyssey’s study confirms Lamy’s claim: 32 percent of music downloaders said their music purchases have decreased since they began downloading music over the Internet. About one-fourth of those surveyed said they buy more music now.

“There is widespread participation in online music,” Baenen writes in the Odyssey report, titled “Digital Music: The Industry Can Either Get On The Train Or Get Under It.”

“The big news for the industry is, consumers are continually becoming more accustomed to downloading music for free. ... Every day somebody starts their digital music experience creates a serious challenge for fee-based services. hey eventually will have to climb walls they are allowing to be built right now.”

Since the scuttling of Napster, record labels have tried to combat free digital downloading by offering downloads of their own — for a fee. Sites like PressPlay — a joint venture between Sony Music Entertainment and Universal Music Group — and MusicNet, operated by AOL Time Warner, Bertelsmann and EMI Group — let users legally download songs for between $10 and $20 a month.

Seth Oster, a PressPlay spokesperson, said consumers interested in legally downloading and copying music are signing up for his firm’s service.

“We offers features we know people want to people who are looking to not break the law,” he said. Oster wouldn’t reveal subscription figures, other than to say they are in the “tens of thousands.”

But that’s still a tiny fraction of the music download activity. According to Odyssey, only 4 percent of the downloaders his firm surveyed said they’d paid for their digital music. The reason is simple, said Jupiter analyst Stacey Herron.

“At this point, the free file services are better. Period, end of story. Until that changes, people are going to go to the free sites. There’s just more music there,” she said. “If I can find what I’m looking for on KaZaa, why would I pay for a site where I can’t find it?”

THE OFF-LINE THREATAdding to the the music industry’s problem is the ever-simpler tools consumers have for swapping music, Herron said. Consumers are already used to e-mailing music files, but enhancements to instant message services allow even more instantly gratifying music swapping with friends. Meanwhile, off-the-Internet digital swapping, while hard to quantify, is also on the rise. Within five years, according to Jupiter, consumers will be toting nearly 70 million portable digital music devices like Apple’s iPod, making such file swapping nearly as big a problem as Web services like KaZaa.

“If I were in the music industry I would be shaking about new burn software. ITunes on Apple’s iPod is really easy to use,” Herron said. “I take my iPod to my friend’s house and I copy his new CD, rather than walk to the store in the rain and buy it. ... I download 17 tunes that are my favorites, burn CDs of them and give them to friends. The more easy they are to use, the less consumer has an understanding of the word ‘steal.’”

But there is still time for the recording industry to recover, Baenen said. While services like KaZaa offer nearly complete libraries of music, they are also crowded with lower quality files, disappointing fakes, and even computer viruses. KaZaa also faces a possible Napster-esque end. The recording industry has sued the service and court date looms in December.

So consumers could be swayed by a low-cost alternative service that offered guaranteed quality, Baenen said.

“It’s not lost on Kazaa users, the problems with that service. People will lose tolerance for those sites. They are crowded with viruses ... amateur porn,” he said.

Odyssey’s study showed 42 percent of online households and 56 percent of broadband households would be interested in subscribing to a paid music download service. “Big music consumers are out there. It would be great if the record industry could meet them out there.”

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