Making Money on Free Music

Despite heavy opposition from the music industry, 19 percent of Americans over aged 12 have downloaded music or MP3 files from an online file-sharing service, translating into over 40 million users within the current U.S. population (accordingly to 2000 U.S. Census figures), according to research from Ipsos-Reid.

Peer-to-peer music swapping was back in the limelight recently as Eminem’s new CD was released early, in hopes of diverting attention from the bootleg online tracks to the record store. But the early enthusiasm generated by the downloading may have been what propelled the album to number one upon its release.

Opponents of file-sharing can’t argue with the numbers – downloading music is one of the leading activities among 12 to 24-year-olds. Approximately two-fifths of that age group download music or MP3 files from an online file-sharing service, followed by 41 percent of 12 to 17 year-olds, and 45 percent in the 18 to 24 age group.

The research finds that peer-to-peer file-sharing is not just for kids: 26 percent of those between the ages of 25 to 34, and 14 percent of those aged 35 to 54 reporting having downloaded music or MP3 files from an online file-sharing service. Additionally, one quarter of American males engage in online file-sharing, compared to only 14 percent of American women.

“With all of the recent media attention surrounding online file-sharing, it was interesting to finally get a current representative view of what is really going on among the general U.S. population with regard to this activity,” said Matt Kleinschmit, senior research manager for Ipsos-Reid and the TEMPO research program. “And clearly, there is a sizable portion of the population that has indeed obtained music through an online file-sharing service, especially in the younger demographic groups. What is most interesting, however, is that those in older demographic groups also report using these services, and these demographic groups typically include individuals with disposable income that are often highly prized by advertisers.”

Ipsos-Reid also found that 24 percent of Americans ages 12 and older own a PC-based compact disc recorder/burner (CD-R), escalating to 53 percent of file-sharers.

“As PC manufacturers are more and more vocal in promoting music-focused PC packages bundling CD-R drives, soundcards, and speakers together with consumer-friendly software interfaces, Americans are clearly beginning to recognize the inherent music capabilities today9s PCs offer,” continued Kleinschmit.

The information, from a sample of 1,112 U.S. respondents during the last week in April 2002, indicates that 81 percent of downloaders report that their CD purchases have stayed the same or even increased since they initially began downloading music from the Internet. This research corroborates claims from Jupiter Media Metrix that experienced file sharers are 41 percent more likely than the average online music fan to have increased their music spending levels.

Other significant findings from Ipsos-Reid include:

• 84 percent report also using the Internet for more than just downloading, such as listening to song clips, reading about lyrics and tour information, and researching bands prior to actually purchasing their CD.
• 47 percent of these individuals indicate that they have subsequently purchased a particular CD from a band or artist solely because of something they first read or listened to on the Internet.
• 29 percent indicate that their typically preferred genre of music has changed since the inception of their downloading behaviors.
• 21 percent report that their radio listening activities have also changed since they began downloading.

Americans aren’t the only ones taking advantage of the accessibility of music downloads. According to two global studies conducted in 2000 by the Angus Reid Group Inc., 36 percent of all adult Internet users and 41 percent of teens and young adult Internet users have downloaded music from the Web in MP3 or similar formats.

Since the release of those particular studies, there have been a proliferation of music sharing services, as well as improved technology that makes it easier to download and burn CDs, leading to a likely increase in the global figures.

The growing population of file-swappers has resulted in a surge of digital audio products designed to store and play downloaded music. In-Stat/MDR finds that portable digital music player unit shipments (including solid state and revolving media products) will grow from about 7.2 million in 2002 to almost 30 million in 2006.

Instat/MDR estimates that online music revenues are expected to grow at a compound annual growth rate of 33.4 percent between 2001 and 2006, while revenues from downloading and streaming are expected to remain less than 10 percent of total revenues through the year 2004.