The Online Music Debate Rambles On

The number of adults going online to access music-related content increased 48 percent from December of 1999 to March of 2000, according to Cyber Dialogue, and all the hype surrounding Napster has a lot to do with it.

“The dramatic growth in online music users can be attributed to the media’s newfound obsession with Napster, Gnutella, and MP3,” said Peter Clemente, vice president of Cyber Dialogue. “When combined with a marked increase in online music offerings and the proliferation of file-sharing software, the increase in demand for online music makes perfect sense.”

Even though most people associate online music with college students and teenagers, Cyber Dialogue has found that online music users also have deeper pockets than their average online counterparts, spending up to $100 more per year. On average, online adult spent $509 online in the past 12 months, while the average music user spent $610 online for the same period.

So what about buying music? Has the Napster revolution put a dent in music sales, as record companies have been claiming, or do they use the Internet to find music to purchase. According to Jupiter Communications, users of networked music-sharing technologies, such as Napster, are 45 percent more likely to have increased their overall music purchasing than nonusers.

“Because Napster users are music enthusiasts, it’s logical to believe that they are much more likely to purchase now, and increase their music spending in the future,” said Aram Sinnreich, a Jupiter analyst. “But when we conducted our consumer survey, controlled for key music purchasing factors — such as existing spending level, age, income, gender, and online tenure — we still found that Napster usage is one of the strongest determinants of increased music buying.”

Internet music distribution provides a direct marketing and distribution conduit to individual music fans, and offers businesses the ability to learn about consumers’ tastes and habits through its back channel; networked music sharing delivers on this promise better than any other online music application to date. According to Jupiter’s research, if the music industry were to let players like Napster stand, it would drive incremental sales. But, if the industry partnered with networked music-sharing technology companies, the benefit would be exponentially greater.

Jupiter’s survey was conducted among 2,200 online music fans and asked whether the money they spent on music purchases had increased, decreased, or remained the same since they began visiting music destinations on the Web. According to the survey, only cash-strapped, computer savvy users age 18 to 24, who spend less than $20 on music in a three-month period indicated that they were likely to remain at a constant purchasing level despite online music use.

The survey “In the Name of Cool,” which examined the use of Napster by Canadians found that Napster users in that country are big music fans and active buyers. Almost three-quarters (73 percent) have bought four or more CDs in the last six months. Canadian Napster users re predominantly male (72 percent) and age 25 or older (39 percent). Almost one-third (32 percent) are age 18 to 24.

According to the study, approximately 1.8 million Canadians (15 percent of Canadian Internet users) age 12 or older have used Napster at least once to download MP3 files.

Despite the absence of major-label initiatives, consumers have turned online music into a mass market phenomenon, where US online music sales are expected to reach $5.4 billion in 2005, according to Jupiter. The majority of these sales will come in the form of online subscriptions, while individual downloads will continue to be effective marketing tools. In five years, Jupiter projects the online music market will secure approximately 25 percentof the total US music market, with digitally distributed products representing 28 percent of total online music dollars, or a $1.5 billion market in 2005. Subscription services will account for $980 million in 2005 vs. a la carte download music, which will grow to $531 million in 2005.


US Online Music Spending
1999 2000 2001 2002 2003 2004 2005
Total Online
Music Spending

(millions)
$387 $836 $1,469 $2,259 $3,181 $4,219 $5,364
Percent of
Market Online
2.7% 5.5% 9.1% 13.3% 17.4% 21.3% 24.6%
Physical
Product
$387 $826 $1,431 $2,109 $2,713 $3,299 $3,853
A La Carte
Downloads
$0 $9 $34 $88 $189 $339 $531
Digital
Subscriptions
$0 $0 $5 $63 $278 $581 $980
Source: Jupiter Communications

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