Study Says Net Could Benefit Music Firms

As the music industry decries online piracy, a research report released Tuesday insists that the record labels’ true threat is the slumping economy--and that downloadable music could provide more than $2 billion in new revenue over the next two years.

The report by Forrester Research notes that the major labels blame file-sharing networks such as Kazaa and Morpheus for music sales slumping 6% last year, and nearly 10% this year through the end of July.

But blaming music fans who pirate tunes from the Internet doesn’t add up, said Josh Bernoff, the Forrester researcher who wrote the report.

Although people who grab music more than nine times a month off the Net say they’ll decrease their record purchases by 2%, this still represents a relatively small chunk of music consumers and doesn’t account for the two-year drop in music sales.

Instead, the report found that consumers who rarely--or never--use digital tools to download music purchase more than two-thirds of CDs sold in the U.S. Bernoff asserts that limited radio playlists, high-priced CDs and a general economic recession are far more to blame than online pirates.

“This is worse, a lot worse, than what you saw during the recession in 1991,” Bernoff said. “Like then, there are other elements at work causing the slump.”

In its study, Forrester interviewed 1,000 online consumers about their music-buying habits: how many albums they bought last year, how many they expected to buy in the next 12 months and whether they bought fewer CDs after downloading songs from file-sharing sites.

The results, which record label sources declined to discuss, showed that 13% of avid online music users say downloading decreased their CD buying habits.

But 39% say they bought more CDs because they found new bands--and new music that they wanted to buy--through the file-swapping services.

The Recording Industry Assn. of America insisted that, regardless of Forrester’s findings, Internet downloads are undercutting music sales.

A soon-to-be-released study conducted by Peter D. Hart Research Associates for the RIAA shows that among people who download more from file-sharing services now than six months ago, “41% purchased less music in the past six months and only 19% purchased more music in the past six months,” said Amy Weiss, a spokeswoman for the RIAA. “By more than two to one, those who say they are downloading more say they are purchasing less.”

The Forrester report proposes that the major labels must be more flexible in pricing and offer online access to their entire music back-catalogs.

If the labels can make downloading music effortless, and make impulse buys easy, consumers will be more likely to spend their limited entertainment dollars on music--rather than video games, movies or DVDs, as they do now.

According to the report, that shift could lead to a fairly aggressive--and, critics would say, optimistic--boost: $937 million in U.S. in album downloads, $805 million in singles downloads and $313 million in subscription rates by 2007.

Major record labels have yet to give music fans as comprehensive a selection of songs as they’ve been getting from pirate services for more than three years, despite a series of improvements that make legitimate online music services more attractive.