By Richard Menta 12/07/02
I realize the title of this article makes it sound like a sizable set of our population is engaging in some illicit act or sexual proclivity. In reality they are just sampling culture, a part of it that the record industry in the past successfully metered out to the masses with an eyedropper to fantastic profits.
And Ipsos-Reid's ongoing measurement of the downloading habits of Americans (called TEMPO) reinforces the notion that by resisting change the record industry has lost a great opportunity for the Net to grow their industry further.
The latest findings from Ipsos shows that a fourth of all Americans over the age of 12 have downloaded a music or MP3 file from the Net. That comes to about 60 million people. The report doesn't differentiate between active file traders and those who smoked but did not inhale, it just gives a broad view of those who at least tried it. The 28% who admit to tune tasting in the September poll show a slight, but upward rise in those who turn to the Net for music (26% in June, and 24% in April). Taking account the 2.94% error-factor in their poll, this shows that file trading among Americans has at least been stable over the last 6 months.
Maybe the more telling statistic comes from Ipsos-Reid's finding that half of the US population over age 12 have listened to store bought CDs from the CD-ROM drive in their PC. This has two implications. First that the record industry's continual desire to release PC-crippled CDs is going to piss off a very large percentage of the US buying audience. Second that a good number of people may be using their PC to replace their home stereo and so electronic manufacturers need to tailor their products to appeal to the demands of these customers.
The electronic manufacturers are taking the bull by the horns and doing just that. The record industry is not.
"These numbers reinforce the notion that digital music activities, including both those more passive in nature such as listening to a CD in your PC's CD-Rom drive, as well as more interactive behaviors such as downloading and file-sharing, are not dwindling, and in fact, are gradually becoming more prevalent among the general U.S. population," said Matt Kleinschmit, Director for Ipsos-Reid and the TEMPO research program.
"This is noteworthy" continued Kleinschmit "because while 2002 has been a very volatile year for digital music in general, from ongoing file-sharing litigation and talk of prosecuting individuals for copyright violations to controversy surrounding copy-protected CD's, American music enthusiasts clearly intend to continue integrating the inherent flexibility and convenience of digital music into their traditional music listening behaviors."
This smacks of opportunity to me. The electronic manufacturers see it because the market for traditional CD players has been stagnant over the last several years as most households already have several players in the home and car. Prices have dropped considerably too over the years as the technology matured, taking the standard portable CD player to about $50. Meanwhile Apple is coming up on their four millionth Apple iPod sale with players running between $300 and $500 dollars. Digital music is a huge growth area for electronic firms and, as Apple is proving, computer companies.
The record industry still doesn't see it that way. They are gradually warming up to the idea of selling digital downloads, but they still want to charge us egregiously for the privilege. This brings us to another finding by Ipsos, that there is an increased willingness among consumers to pay for the music they download.
In June of this year Ipsos-Reid found that just over one-quarter (27%) of American Downloaders reported having paid for at least some of the music they downloaded. By the end of September that number increased to 31%. That confirms that users are willing to pay for digital music if the terms and pricing is right, even with the availability of free P2P services.
KaZaa right now claims an audience of 140 million worldwide users. If PressPlay could claim just 1% of that audience they would be a very successful entity. The Ipsos poll says that right now, even with the existence of KaZaa, 31% are willing to fork over dollars for tunes. Unfortunately, the record industry's product is so restrictive and expensive that they turn away more of this potential audience than they draw.
The movie industry charges $8.00 per person to see a flick in the theater, and then $3.00 in video stores to rent the same movie for the whole family. This tier pricing has worked tremendously well for the movie industry as most movies make more revenue through rentals than through theater receipts. The ultimate irony is that the movie industry was dragged into videotape kicking and screaming.
Likewise, the record industry has entered the Net music world kicking and screaming. They too should embrace tier pricing where the regular CD drops a few dollars from the ridiculously high price of twenty bucks, while unencumbered music downloads sell for a dime a song. Selling individual songs for $0.99 or $10-15 a CD isn't all that much better priced than the store bought CD, plus the tunes from the record company endorsed services have significant restrictions on them making the overall prospect of buying downloads considerably less appealing.
Still, Kleinschmit clearly feels there is opportunity for the record industry to succeed.
"…Downloaders are becoming more realistic in their approach to online music acquisition, and perhaps realizing that access to online music is a valuable service, and as such, is worth paying for. In addition, in the past several months online music has undergone two important changes: increased vigilance in both litigating and subsequently marginalizing many of the popular file-sharing networks, and significant positive refinements in current legitimate fee-based online music services. We are now finally seeing an online music landscape in which many legitimate online music services offer the robust music catalog, portability, and file ownership that consumers have indicated they seek."
I do disagree with one note Kleinschmit made, the part about " marginalizing many of the popular file-sharing networks". KaZaa's 140 million users are twice that of Napster's peak and far more than the recently defeated Madster (formerly Aimster) ever had.
Free file trading has only increased exponentially since Napster first went to trial against the record industry. The industry may have won most of the battles in court, but they so far are losing the war with the customer.
Ipsos-Reid's results can be read here
The Nomad Zen can be ordered from Amazon.
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