Album Sales Test the Napster Effect

Napster Inc. has been losing fans by the millions.

The slide began after a devastating March 5 federal injunction directing the file-swapping service to block users from sharing copyrighted songs. From a high of 16.9 million users in February, the service has dropped to 10.9 million users last month, according to research firm Jupiter Media Metrix.

So with Napster in retreat, music fans must be buying more albums in stores, right? Wrong. Retailers say their record sales are down 5% to 10% this year compared with the same period a year ago.

The numbers raise the issue of whether Napster truly represented the doomsday for record companies that some industry executives predicted. And they call into question the Recording Industry Assn. of America’s contention that Napster would cause “immeasurable” harm to the business.

Napster loyalists suggest the service may have spurred sales.

Still, some retailers say Napster may not affect music sales at all. Slumping sales have more to do with a comparatively weak release schedule, a stumbling national economy and the popularity of video games and other competing forms of entertainment.

“I don’t think it’s as big a factor as the industry says it is,” said Bob Feterl, director of Tower Records’ Southwest region. “If it’s good product out there, people buy the CD.”

SoundScan research shows total music sales are down about 5.7% from the same period last year, dragged down by giant drops in sales of the singles format and cassettes--both of which are being manufactured less by the major record conglomerates.

The story with CDs is even more intriguing. According to SoundScan, CD sales from January through March 4 were up 5.6% from the period a year earlier. But for the period from March 5--just after Napster began removing copyrighted material from its service--through June 12, CD sales were behind last year’s numbers by 0.9%.

Some of Napster’s users have fled to rival file-sharing services such as Aimster, BearShare and Gnutella. But according to Jupiter research and other analysts, the combined audience of those sites in May had reached only about 1 million.

One possible explanation is that Napster’s free file exchange encouraged consumers to buy music. Once Napster was ordered to police its music files, the record industry lost a powerful marketing device.

Hank Barry, Napster’s chief executive, said the current sales slide proves that Napster was actually aiding retailers by stoking consumers’ appetites for music.

“Exposure over the Internet prior to a record’s release increases sales,” Barry said. “They listen to it, they like it, they go and buy it. [Napster users] are the record industry’s best customers.”

A service that had as much mainstream popularity as Napster included a large number of casual users. Ric Dube, an analyst with online research firm Webnoize, said, “If they find Napster isn’t what it used to be, they don’t pack up and move somewhere else to consume music [online]. They consume less music. They play a game. They read a book.”

However, the explanation may be far simpler. Business is down from last year, retailers say, because this year’s albums aren’t as popular as 2000’s blockbusters.

“We’re up against some major releases from last year that nothing has come close to” this year, said Dick Odette, a senior vice president for the Musicland store chain. “To say, ‘Boy, [sales should rise] because Napster’s shut down’ is going too far.”

In March 2000, for example, a new album from pop act ‘N Sync broke industry records by selling an estimated 2.4 million copies in its first week in stores. Last March, there was no hit comparable to ‘N Sync’s “No Strings Attached.”

In May 2000, retailers enjoyed huge first-week sales from pop queen Britney Spears and rap act Eminem. Each sold more than 1 million copies of their new records.

In contrast, the biggest first-week numbers so far this year came from the Dave Matthews Band, whose album sold an estimated 732,000 copies in its first week, according to SoundScan.

Such figures are by no means disappointing, but retailers say they remain starved for more smash hits, pointing to the expected arrival of another ‘N Sync record next month.

The apparent lack of a Napster effect on album sales, however, contrasts sharply with the suggestions of the RIAA and the major record conglomerates.

In August, after a federal court issued an initial ruling against the file-swapping service, the RIAA said on its Web site that “in view of the healthy state of the U.S. economy, it would be surprising if record sales did not increase. Common sense suggests that sales would have increased even more without Napster.” And in court papers, the record companies bolstered their case with experts who said Napster downloads cut into CD sales.

Hilary Rosen, president of the RIAA, declined to address what retailers say is an apparent lack of a Napster effect.

“I’m optimistic that our year-end figures will even out as our numbers in the third and fourth quarters will reflect great products being distributed between now and then,” Rosen said.

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Don’t Blame It on Napster

Record sales have declined this year despite a major exodus of from Napster’s file-swapping service. Retailers say sales are down from the same period last year because this year’s releases haven’t equaled last year’s blockbusters by pop acts ‘N Sync and Britney Spears and rap artist Eminem.

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Napster Users (In millions)

May: 10.9 million

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Percentage Change in Sales of Albums in U.S.

May: -2.8%

Sources: Jupiter Media Metrix, SoundScan, Times research