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Music biz in a funk

February 25, 2002
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NEW YORK (Variety) - The total number of unitsshipped by the major record labels sank by more than 10% in 2001 --a decline the industry blamed in part on the ballooning growth ofInternet piracy, but which others claim may also reflect morefundamental troubles in the business.

The five majors, which together represent nearly 90% of allmusic sold in the U.S., shipped 969 million units last year (net ofreturns), including CDs, cassettes, LPs and DVD music videos,according to data compiled by the Recording Industry Assn. ofAmerica. That's down from 1.08 billion in 2000.

The downturn was not as pronounced on a dollar-value basis, asmore-expensive CD-format shipments continued to account for alarger part of the mix. Music product worth $13.7 billion shippedto stores, down 4.1% from the year before.

The shipment numbers provided by the RIAA are not the same asactual sales at retail, which include the effect ofindependent-label stock and exclude record club sales. They alsodiverge because of fluctuations in retailers' inventories. Retailsales in the U.S. fell nearly 3% in 2001, according to datareleased earlier this year by SoundScan.

The industry said a large part of its woes in 2001 areattributable to the Sept. 11 effect and the dismal economicbackdrop, which has pounded consumer goods makers of all stripes.But the RIAA saved the bulk of its ire for cyberpirates, whom theyclaim are siphoning off the industry's growth prospects.

"When 23% of surveyed music consumers say they are not buyingmore music because they are downloading or copying their music forfree, we cannot ignore the impact on the marketplace," RIAApresident Hilary Rosen said, citing a study commissioned by thetrade group.

But the industry has also been broadly criticized for relying ona business model that is fast becoming outdated and for choosing tofight online music fans rather than find an effective way to sellto them.

The record biz's two main stabs at a legal alternative to thefree file-swapping world, Pressplay and MusicNet, went onlinenearly two years after the rise of Napster, and have taken heat forthe restrictions they place on copying and transporting musicfiles.

"They have begun to wake up, but it probably would have helpedif they had done that 18 months ago," said James Glicker, CEO ofindependent music Netco FullAudio, which has developed its owndigital distribution platform. "The technology radically changedthe business model, and some of the things they're facing are verydifficult to correct. On the other hand, they could have been a lotmore aggressive in providing alternatives."

One of the most intractable problems for the industry, accordingto both Glicker and the RIAA, is the proliferation of CD-burningtechnology.

The industry-sponsored study found that more than half of peoplewho download free music from the Net also copy it onto a burned CDor MP3 player, and that ownership of CD-burning hardware hastripled over the last three years to 40% of music consumerssurveyed.

Free music has proliferated on the Net over the past year, asthe demise of Napster's free service has given way to several moreefficient and harder-to-stop successors. The RIAA has suits pendingagainst the most popular of these, including Morpheus, Kazaa andGrokster, but it's unclear as yet how effective their enforcementefforts will be.

By the RIAA's numbers, CDs continued to grow as a percentage ofthe total shipment mix, even though the numbers sold declined 6.4%overall (2.3% in dollar terms). CDs represented 91% of units sentto retailers, compared with 87% in 2000.

DVD music video shipments surged along with the larger DVDmarket as the format continues to be embraced by consumers.Shipments of that format leapt nearly 140% in both unit and dollarterms.

Meanwhile, shipments of LPs held steady at just over 2 million,and music cassettes continued their steady decline into oblivion,with shipments slumping by 40% from the year before.

-Reuters/Variety

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