Downloaders Will Pay For Ownership

As the copyright debate spins in recording industry boardrooms, Congressional hearing rooms and college dorm rooms, a survey of digital music suppliers and consumers suggests some common ground.

A key conclusion of the Jupiter Research (a unit of this site’s corporate parent) study is that music fans – whether buying CDs in a store or downloading albums or individual tracks over the Internet – want to own the tunes and are willing to pay a premium to do so.

Nearly twice as many online consumers are willing to pay $17.99 for a CD that has unrestricted copy abilities versus a CD at only $9.99 that cannot be copied, the study concludes.

“Consumers are well-accustomed to having freedom to copy music as they see fit,” said Peter Sargent, a senior analyst at Jupiter Research, and author of the report. “It’s really been a right of passage. If I buy it, it’s mine to keep.”

Price Expectations of Digital Music
Price of Digital Song $0.01 $0.50 $0.99 $1.49 $1.99
Percentage of market reached 89% 82% 74% 42% 39%
Potential revenue † N/A $992.20 $1,772.89 $1,514.44 $1,878.16
Price of Digital Album $0.01 $5.00 $9.00 $12.00 $16.00
Percentage of market reached 87% 72% 36% 12% 2%
Potential revenue † N/A $9,129.60 $8,216.64 $3,651.84 $811.52
† Potential revenue is used to illustrate how pricing impacts market size and affects profits, and is calculated by multiplying the percentage of market reached by the survey sample, and, in turn, by the unit price.
Base: 2,400+, August 2002
Source: Jupiter Research

While consumers’ willingness to pay more for an unencrypted disc may be music to the ears of the Recording Industry Association of America (RIAA), it doesn’t follow that jacking up prices is good businesses.

“The message for content providers is to be extremely careful about introducing copyright restrictions without considering sigifnicant reductions in price,” Sargent said. “Otherwise they risk a backlash.”

So far, it’s an understatement to say content providers are resisting the need to decrease prices, Sargent added. The companies are wary after seeing free content sharing sites such as Napster and its progeny cut into profits.

The study, which surveyed 1,700 online consumers and will be available in about two weeks, reached similar conclusions for movies.

Additionally, 41 percent of respondents said they were willing to pay more for movies that could be copied. Since few DVDs can now be copied, the findings represent a significant opportunity.

“The concept is attractive, because so few consumers are currently doing it and because it could be introduced at premium prices,” Sargent said.

Despite the opportunities, there are high hurdles to clear to find a balance between digital content owners and consumers including workable encryption technologies, legislative and judicial issues concerning the application of the Digital Millenium Copyright Act, and the adoption of a widespread tiered pricing system.

Meanwhile free music still holds great appeal, as evidenced by findings from Ipsos. The firm’s December 2002 TEMPO music research indicates high downloading activity, particularly among Americans aged 12-to-17, where nearly half (48 percent) reportedly downloaded a music or MP3 file in the month they were surveyed – up from 44 percent in April 2002. Slightly fewer (42 percent) of 18-to-24 year olds engaged in downloading, compared to 36 percent in the earlier survey.

“Past month activity is often an indication of repetitive behavior, and thus this particular measure provides an idea of the proportion of the U.S. population that is regularly downloading music or MP3 files off of the Internet,” said Matt Kleinschmit, a director with Ipsos and the TEMPO research program.

Overall, nearly 18 percent of the American population over the age of 12 reportedly downloaded a music or MP3 file in the month they were surveyed, with “sampling” motivating 73 percent of the downloading, according to Ipsos.

“This downloading could include anything from sampling music clips from artist-endorsed Web sites to peer-to-peer file-sharing, and provides further evidence that many Americans’ are consistently using the Internet as a method for listening to and obtaining music,” commented Kleinschmit.

Downloaders seem to be unclear about the legal and moral issues that surround this activity. Only 16 percent believe that record labels are justified in shutting down file-sharing services, such as Napster and Audio Galaxy, and 39 percent agree that making copies of music to give to friends is okay. Also, a mere 9 percent thought that downloading free music off of the Internet is wrong, and 21 percent agree that free downloading and peer-to-peer file-sharing hurts artists.

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