By Jon Bonné
msnbc.com
updated 1/4/2004 6:06:23 PM ET 2004-01-04T23:06:23

In just seven months, the number of Internet users in the United States who download music has been sliced in half, according to new research. The dwindling numbers appear to reflect a profound impact from the recording industry's high-profile campaign to sue downloaders for illegal file-swapping.

According to data compiled by the Pew Internet and American Life Project and comScore Media Metrix, just 14 percent of online users aged 18 or older -- some 18 million people -- said they used the Internet to get music, compared to 29 percent -- 35 million people -- who said they did in a survey last April and May. The latest survey was conducted from mid-November to mid-December and had a margin of error of plus or minus 3 percent.

There was also a significant drop in the use of online file-sharing programs. According to comScore's tracking data of desktop applications, about 25 million people in November were running the KaZaA service, which allows users to download and share files, compared to a peak of 35 million in June. Other file-sharing programs suffered similar drops; WinMX had just under 6 million users in November, down from 7.5 million users a year earlier; Grokster dropped from 1 million users to about half that during the same time period.

"We've never seen anything plummet like this," said Lee Rainie, director of the nonprofit Pew project.

While the popularity of some Internet applications, like chat rooms, has leveled off since Pew's first survey of online usage in 2000, no other type of usage has ever shown a decrease, Rainie noted. He attributed the drop to lawsuits filed by the Recording Industry Association of America, which represents record labels, against individual Net users found sharing files. 

Hundreds of lawsuits
The RIAA began sending subpoenas to Internet service providers last July, demanding the names of users who it alleged were downloading music using free file-sharing software. It made at least 2,444 requests, according to a database maintained by the Electronic Frontier Foundation, which has opposed the industry's efforts.

In September, industry lawyers filed the first of nearly 400 lawsuits, saying they could collect up to $150,000 for each violation under a provision of the Digital Millennium Copyright Act. Beyond their punitive impact, the lawsuits were meant to scare other users from free downloads to for-pay services that charge by the song.

"This data suggests to us we're on the right track," Mitch Bainwol, the RIAA's chairman and CEO, said in a statement. "This campaign has had a profound impact on awareness. We will continue on this course, which is critical to creating an environment where legal services can flourish."

Most defendants quickly settled for a few thousand dollars, but the lawsuits were also a public-relations boondoggle. Some defendants said they had never installed file-sharing software; others countersued, claiming privacy violations. In one notorious case, the RIAA sued a 12-year-old New York girl, Brianna LaHara, whose mother eventually paid $2,000 to settle.

"The suits obviously were a watershed moment in the file-sharing world," Rainie said. "A substantial portion of people who are swapping music files online don’t want to be breaking the law."

The survey found less downloading among every type of user. While 56 percent of students said they downloaded last spring, only one-quarter acknowledged they did by the fall. And just 12 percent of users with household incomes between $50,000 and $75,000 were downloading by the end of the year -- down from 28 percent.

'We'd have noticed'
It's difficult to tell whether those figures correlate to file-sharing services' own statistics.  KaZaA has been downloaded over 310 million times, according to Download.com, with 2.5 million copies this week alone. But the service has not disclosed other usage statistics. Firms that track file-sharing, such as BayTSP and bigChampagne, have recorded steady usage over the past year. And some companies that distribute file-sharing software insist their businesses have seen only minimal impacts.

"It's all a load of b.s.," said Wayne Rosso, CEO of Optisoft, which produces the Blubster and Piolet file-sharing programs. "If that many people had stopped using our service then we'd have noticed a drop in revenues."

Rosso, the former president of Grokster, said Optisoft's income has seen little change even as the RIAA lawsuits were rolled out. He did not disclose figures, though he said the services added over 3 million unique users in the past year, with half a million new copies of the software downloaded each month, mostl by U.S. users.

Many users may have resumed downloading, he noted, after a federal appeals court ruled in December that the RIAA's subpoena tactics were not covered under the 1998 copyright act.

The court said record companies would have to go to court for each individual subpoena and ask a judge to allow a user's name to be subpoenaed. Its ruling at least temporarily derailed the legal effort, though the RIAA has said it will appeal.

But Rosso said new technologies being developed -- encrypted downloads, for example -- will bolster confidence among online downloaders.

"Short of nuclear holocaust," he said, "they're not going to stop file sharing."

Rise of legal options
ComScore's data also show growing interest in industry-backed services like Apple's iTunes and Napster, which charge by the song and provide copy-protected files. Napster's Web traffic was up to 3.2 million visitors by November 2003, a more than fivefold growth from December 2002. ITunes -- which comScore began tracking in October -- grew to about 2.6 million visitors, though the visits to the services' Web sites do not reveal actual usage. Napster relaunched as a for-pay service October 29.

The iTunes service, which released its Windows product in October, said its users have downloaded 25 million songs since April. According to Nielsen SoundScan, which tracks music sales for all the online services, users bought 19.2 million downloads between July and December.

Even if the lawsuits have stemmed downloads, they haven't necessarily reversed the recording industry's withering sales, which have shrunk each of the past three years.  That trend eased slightly in 2003, according to Nielsen data released Wednesday that showed U.S. consumers bought 687 million units, a slight dip from the 693 million bought in 2002.

But the slide in sales hasn't been addressed at all by the lawsuits, says Fred von Lehmann, senior intellectual property attorney for the Electronic Frontier Foundation. Von Lehmann believes many respondents to the Pew survey didn't reveal their true downloading habits for fear of being sued. And even if fewer users chose were sharing files, he said, those scared by the lawsuits weren't moving over to paid services, which require special software and often use proprietary formats.

"We shouldn’t be trying to force consumers to give up the tools they like," he said.

As an alternative, the foundation backs a system similar to music licenses for radio stations, which pay an annual fee for unlimited broadcast rights. Under such a system, online downloaders would pay an flat fee to download as much music as they wanted. "Until we see something radical like that, I think we'll continue to see sliding music sales."

Rainie, however, believes more users will flock to pay services as the download process becomes easier and per-song costs become more affordable. A growing price war for online music -- Wal-Mart's new service recently undercut Napster and iTunes with 88-cent downloads -- has made digital files more attractive to many music buyers than a full CD from the local record store. "That’s a big market change," Rainie said.

On the other hand, he acknowledged, "When free services go away, there will be some portion of people who will never do it again."

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