WASHINGTON, March 31 (UPI) -- Either free or pay, Americans are tapping the Internet for tunes.
In a report released Tuesday, research firm Ipsos-Insight said that by the end of last year, pay-per-song downloading had markedly increased. Ipsos said that paying downloaders nearly tripled in December of 2003 compared with the same period a year ago.
But a study by two researchers, one at Harvard Business School and the other at the University of North Carolina, Chapel Hill, reports that sharing digital music files has no effect on CD sales.
The academicians said Wednesday this was the first study that directly compares actual downloads of music files and store sales of CDs.
Study authors, Associate Professor Felix Oberholzer-Gee of Harvard and Professor Koleman Strumpf of UNC, noted that most files downloaded for free from swapping sites appear to be downloaded by individuals who would not have bought the albums that they downloaded.
The study looked at file sharing for the second half of 2002.
The report said that file sharing cannot explain the decline in music sales during this period. Even in the professors' most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy.
The joint report added that the more popular category of CDs, in fact, benefited from file sharing.
The effect of file sharing on sales depends on the popularity of a release, according to the researchers. For the least popular albums (with sales of less than 36,000 copies) the authors found a small negative effect. In contrast, for the top 25 percent of albums (with sales of more than 600,000 copies) they found a positive effect.
According to the study, "150 downloads increase sales by one copy. This effect is particularly important because the profitability of the music industry depends almost entirely on the success of the most popular albums."
Yet, Britain's EMI music group said Wednesday it will lay off 1,500 employees as it outsources its CD manufacturing, merges labels and dumps underperforming artists, according to a statement at its Web site. It partly blamed downloading.
Fighting to stay competitive in a market hit by plunging sales, EMI says it will dismiss 20 percent of the staff at its recorded music division, with 900 staffers going as it closes CD and DVD manufacturing plants in the Netherlands and the United States.
The measures, it said, are the latest attempt to cope with music downloading and other forms of entertainment such as video games and DVDs.
Meanwhile, the Recording Industry Association of America continues to go after those illegally downloading their products, which has lead to more and more people coughing up real money for downloads. Apple and Wal-Mart now make songs available for less than a dollar each.
According to Ipsos, efforts by the music industry to continue integrating the growing popularity of digital music downloading with traditional retail distribution brought a veritable explosion of fee-based digital music in 2003.
New findings from TEMPO, Ipsos-Insight's quarterly tracker of American digital music behaviors, reveal that in December 2003 as many as 22 percent of American downloaders aged 12 and older had paid a fee to download digital music off the Net. This represents a three-fold jump from the same period last year when less than one out of 10 (8 percent) of U.S. downloaders paid a fee for their music.
Ipsos explains that it is a confluence of factors -- ranging from the RIAA crackdowns to an increase in the number of digital music download services -- which has changed downloading behavior.
"In the past year, high-profile litigation by the RIAA towards high-volume individual file-sharers coupled with the launch of several new consumer-friendly fee-based online music services has prompted many downloaders to experiment with paid downloading for the first time," said Matt Kleinschmit, director of Ipsos-Insight's Technology & Communications practice, and author of the TEMPO tracking research study.
"This is the clearest sign yet that American music enthusiasts are becoming increasingly dependent on digitally formatted and distributed music, and as a result, are sampling many of the recently launched fee-based online music services to find a legal means of online music acquisition," Kleinschmit said. "The next order of business for fee-based online music services is to both continue to lure new consumers to their respective services, as well as retain users who may be visiting for experimentation purposes only."
More than three-fifths (62 percent) of American downloaders who have paid to download digital music are burning the files onto recordable compact discs. And these downloaders are burning an average of two separate copies of the digital music they have purchased online, Ipsos reported.
Also, TEMPO research revealed that more than half (56 percent) of Americans who have paid to download digital music added the files to a custom playlist, while one-quarter (26 percent) transferred the music to a portable MP3 player.
"These actual usage data underscore the consumer demand for at least moderate usage flexibility and portability in fee-based music downloads," Kleinschmit said. "However, while these downloaders do appear to require the ability to burn files and transfer music to portable devices at their leisure, it is interesting that few of these consumers are doing so in excess."
He added, "Given the relatively adolescent stage of consumer experimentation with these services, it will be important to closely monitor fee-based digital music file usage activity in order to anticipate the impact of any modified usage limitations on user satisfaction and retention."
