Record Industry Says Napster Hurt Sales

The record industry has argued that Napster is siphoning off sales, and now it claims to have fresh evidence to back up that charge.

Shipments of singles, the format that once provided the engine for the music business, plummeted last year as the industry turned up the heat in its court battle with Napster and landed a major blow to the file-sharing service in federal court.

Shipments of CD singles slid 38.8% after holding even a year earlier, according to data compiled by the Recording Industry Assn. of America. Shipments of CD albums rose 0.4% after increasing 10.8% in 1999.

Data from SoundScan, which tracks actual retail sales, showed total music sales increased 4% last year, but also found singles declined sharply.

“Napster hurt record sales,” said Hilary Rosen, president of the RIAA. The drop in singles sales particularly, Rosen said, shows “the cream was skimmed at a higher level.”

But retailers and industry analysts say it’s unfair to pin the lion’s share of the blame on Napster, saying economic uncertainty, a lack of releases by major stars and even rising gas prices played major roles in declining sales.

“Napster alone doesn’t seem like a fair alibi,” said Michael Nathanson, a Wall Street analyst with Sanford C. Bernstein & Co. “It’s a combination of things. Softness in consumer spending. The hit titles were for such a narrow [audience] that it was a very thin year, and lastly, the Napster factor. You can’t put your finger on it.”

Hank Barry, Napster’s chief executive, said the RIAA’s interpretation of the data is designed to bolster record labels’ legal contention that they are suffering “irreparable harm” at the hands of digital pirates using the company’s software.

“In order to argue we’ve done irreparable harm, it would be great if there were some irreparable harm to show,” he said. “We haven’t seen a credible survey yet that suggests Napster is hurting CD sales.”

Barry attributed the drop-off to record labels’ decisions to cut production of singles. Record executives say the format is unprofitable and has outlived its use as a marketing tool.

Some current radio hits, such as Fuel’s “Hemorrhage” and K-Ci & Jo-Jo’s “Crazy,” aren’t being released as commercial singles, according to SoundScan.

Though the single was the record industry’s linchpin format in the 1950s and 1960s, it slipped to near-extinction as vinyl records gave way to cassettes and then compact discs in the 1980s. In the mid-1990s, the format enjoyed a brief revival as record companies began using cheap singles as a promotional tool.

But record executives worried that singles were cannibalizing sales of full albums, and labels began losing money on them when retailers tacked on additional fees. Moreover, the labels’ strategy of flooding the market with cheap singles to inflate sales and influence radio airplay unraveled as radio stations started using more of their own research.

Roy Lott, president of EMI Group’s Capitol label, which released last year’s mega-selling Beatles album, said “the ability to influence airplay is less and therefore the need [to issue singles] is less.”

But Lott said Napster was “the prime culprit” for the drop-off in album shipments.

Retailers also cited the absence of new albums by mega-selling artists such as Garth Brooks, disappointing sales by such established acts as No Doubt and the lack of a successful film soundtrack as factors in the overall soft CD shipments.

“To be honest, it wasn’t a great music year,” said Andreas Schmidt, chief of the e-commerce group at Bertelsmann, which has joined forces with Napster and is financing Napster’s transformation into a paid service. “There were some isolated events, but we didn’t put that much good stuff out.”

Despite the RIAA’s interpretation of the shipment data, some executives say the file-swapping service is worthwhile because it can generate buzz around new artists and translate to an overall increase in sales.

“I think you lose some sales, but you’re building awareness of the artist,” said Kedar Massenburg, chief of Vivendi Universal’s Motown Records. “The more your awareness of a record, the greater your sales.”

“If it’s not being bootlegged,” he said, “it’s not a hit.”

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A Skip in Their Groove

Despite such top-selling acts as Destiny’s Child, ‘N Sync, Dr. Dre and the Dixie Chicks, sales of recorded music fell for the second time in a decade last year, by 1.8%, to $14.3 billion. The song-swapping service Napster contributed to the downturn.

Music sales are down ...

All recorded music, in billions

2000: $14.3 billion

... as CD sales growth slows ...

In billions

2000: $13.2 billion

... and sales of CD singles fall.

In millions

2000: $142.7 million

Source: Recording Industry Assn. of America