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.

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