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electronic MUSICIAN

Record Labels Say CD Sales Drop 7 Percent, Blame Web

August 27, 2002

By Derek Caney

NEW YORK (Reuters) - Compact disc shipments fell 7 percent in thefirst six months of this year versus last year as growing use ofInternet downloading services undermined sales, the record industrysaid on Monday.

The Recording Industry Association of America (RIAA), whichrepresents the world's largest record labels, issued a study by PeterD. Hart Research Associates indicating that Internet users who say theyare downloading more music also said they were purchasing feweralbums.

"Among people who said their downloading from file-sharing serviceshad increased over the past six months, 41 percent reported purchasingless music now than six months ago, compared to only 19 percent whosaid they were purchasing more music," the RIAA said in astatement.

The record industry successfully defeated the first popularfile-serving service Napster, which a court ruled violated copyrightlaw by offering the ability to share digital music. Since then severalsimilar services such as Kazaa and Morpheus have cropped up.

Earlier this month, Forrester Research issued a study saying piracywas not to blame for the sharp decline in record sales. Its studydiscovered no evidence of decreased CD buying among frequent digitalmusic consumers, noting that the general economy and competition fromother media were larger factors.

"I would not argue that downloading and copying are the only factorsat work," Geoff Garin, chief executive of Hart Research said. "But wehave clear evidence that downloading and copying do not have afavorable effect on record sales."

Jonathan Potter, executive director of Digital Media Association, alobbying group that represents many music sites trying to promote andsell music over the Internet, said such surveys were of littlevalue.

"The way to defeat illegal music distribution services is to offercomprehensive, innovative, fairly priced legal services," Potter said."Until the record companies offer their content ubiquitously in aconsumer friendly way, studies like this are useless."

The five major record labels -- Sony Music, AOL Time Warner Inc.'sWarner Music Group, EMI Group Plc, Vivendi Universal's Universal MusicGroup, Bertelsmann AG's BMG Entertainment -- and other companies aretrying to trying to win users over to subscription-based services. Butnone have reached the mass appeal enjoyed by the unauthorizedservices.

Garin said the survey tried to get an understanding of what wouldinspire consumers to abandon the free file-sharing services, althoughthe results were not made public.

"We do know that consumers don't have a very high recognition ofwhat the alternatives to the free services are," Garin said. But headded that subscription services will find it difficult to compete withfree services.

Potter remained unconvinced. "I'd like to introduce the recordingindustry to something called bottled water," he said, referring to anexample of successful retail items that are also easily available forfree.

"The point is if there were a high quality product that wasaffordable and available across multiple services, they would be ableto defeat the free services," he said.

The RIAA's survey is based on 860 music consumers with Internetaccess between the ages of 12 and 54.

The survey also found that the number pirated compact discs acquiredby Internet users has doubled from a year ago. Asked when they hear asong they like by an unfamiliar artist, 20 percent of the respondentssaid they would download the song for free, while 14 percent said theywould buy the album.

For respondents between 12 and 18 years of age, 35 percent said theywould download the song for free, while 10 percent said they would buythe album.

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