More Music Sold but Less Revenue in ’07, Kids Still Downloading Illegally

February 27, 2008

This article is included in these additional categories:

Media & Entertainment | Retail & E-Commerce | Youth & Gen X

Though the amount of music that US consumers acquired increased 6% year over year in 2007, a sharp increase in legal digital download revenue did not offset declines in CD sales, resulting in a net 10% decline in music spending, according to the NPD Group.

Per-capita music spending among internet users fell from $44 in 2006 to $40 in 2007, and as a result the overall portion of music acquisition that consumers actually paid for fell to 42% in 2007 from 48% in 2006, NPD said.

One million consumers dropped out of the CD buyer market in 2007, NPD estimates, saying that flight was led by younger consumers: 48% of US teens did not purchase a single CD in 2007, compared with 38% in 2006.

Among other findings:

  • Legal music downloads now account for 10% of the music acquired in the US. Reflecting that growth, in 2007 Apple’s iTunes Music Store became the second-largest music US retailer (based on a 12-track CD equivalency for music tracks sold) after Wal-Mart.
  • Some 29 million consumers acquired digital music legally, via pay-to-download sites last year, which is an increase of 5 million over the previous year. Sales growth was largely driven by consumers age 36 to 50 – a segment that was aggressively acquiring digital music players in 2007.
  • The percentage of the US internet population engaging in peer-to-peer (P2P) file sharing reached a plateau of 19% last year; however, the number of files that each user downloaded increased, and P2P music sharing continued to grow aggressively among teens.

“The continued growth in legal download sites is encouraging, yet the industry struggles to improve the value of each digital customer,” said Russ Crupnick, entertainment industry analyst for The NPD Group. “With so many baby boomers and gen-Xers entering the market, there are certainly opportunities to sell more digital albums, promote older catalog titles, or create bundles that will raise revenues. In the near term that’s going to be the best means available to narrow the gap on dwindling CD revenues.”

Illegal Downloads Still Popular among Kids

The music industry’s aggressive litigiousness vis-?-vis illegal music file-sharing has not dissuaded many tweens from continuing to illegally download music, although most kids are using legal means to access music, NPD said.

According to its “Kids & Digital Content” report, 70% of tweens (age 9-14) are downloading digital music in an average month. Though most are using pay-to-download, levels of illegal P2P file-sharing are high, it found:

  • Used by nearly half of tweens who download music, iTunes is the most popular digital music store (49%).
  • However, the second most popular source for digital music among tweens is the Limewire file-sharing service, used by 26% of digital tweens to illegally share music.
  • MySpace was the third most popular site for music sharing, used by 16% of tweens.

“The music industry hoped that litigation and education might encourage parents to keep better tabs on their kids’ digital music activities, but the truth is many kids continue to share music via P2P,” said Russ Crupnick, vice-president and entertainment industry analyst for the NPD Group.

Among NPD’s findings:

  • Two-thirds of tweens who use the internet reported that they are allowed to access the web themselves, without adult supervision.
  • When asked who helps them download music from the web, 59% reported doing it all by themselves.
  • NPD also reported that 76% of tweens who got free digital content were required to register an email address to download content.
  • Nearly half (47%) reported they first had to download standalone software from the web in order to download content from online music stores and P2P file-sharing services.

“Findings in this report suggest that the industry can still do more to promote specific ways children can obtain digital music legally, through pre-paid accounts and gift cards. Another potential way to reach kids is through industry-sanctioned ad-supported web destinations where kids can obtain digital music safely and legally,” said Crupnick.

About the data: US music-acquisition information is derived from NPD’s Digital Music Study and NPD MusicWatch. The study surveyed 5,000 consumers, weighted to reflect the US Internet population (age 13 and older). Music Watch tracks past seven-day music purchase habits of the US population age 13 and older.

About the “Kids & Digital Content Report”: A survey invitation was emailed to a nationally representative sample of parents with kids age 2 to 14 living in the household. The report is based on 3,376 completed surveys from qualified respondents. The final survey data is weighted to represent the US population of kids age 2-14. the information presented here focuses on tweens – children between the ages of 9 and 14.

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