The Online Secret Formula

The latest figures for the music industry remain grim: Online sales of recorded music have dropped 20% through the first half of 2002 compared with the same period last year, losing ground faster than the overall US music market, which lost 7% during the same period, according to the Recording Industry Association of America (RIAA). And the trend is accelerating. The latest numbers show online sales down 25% in the third quarter over last year.

Given that consumers are increasingly shunning official online music sites, what is the distribution formula that might better suit their needs? Another pertinent question: How would the elimination of peer-to-peer (P2P) file-trading networks alter this formula? In new study from Ipsos-Reid, those questions were put to music buyers from various age groups in an attempt to predict what the future might hold for the record labels.

The new findings suggest that overall, a "pay-per-download" model is more appealing to downloaders than are current subscription-based offerings. Results also reveal that close to one-fifth (19%) of the American population aged 12 and over have downloaded music or MP3 files from an online file-sharing service such as Morpheus, Napster, or Audiogalaxy. Ipsos-Reid says this translates to over 40 million file-sharers within the current US population.

The researchers say they presented a representative sample of downloaders with a simulated distribution environment, based on the services found in the real marketplace. These options included a traditional retail channel, P2P file-sharing network, recently launched online subscription-based services, and a hypothetical pay-per-download service. Subscription service scenarios included packages with various features and price structures. One subscription service offered permanent downloads, while the other options only offered streaming and tethered downloads.

Slightly over 48% said they would stick with their P2P option, while 27% indicated a preference for obtaining music through a fee-based online offering (19% preferring pay-per-download, 8% preferring a subscription service) and 25% would still prefer getting their music from a traditional retailer. If no pay-per-download option was offered in the market scenario, the proportion of downloaders who would pay for online music dropped to 12%.

If the RIAA got its wish and all P2P options were magically removed from the market environment, findings suggest that 37% of downloaders would still shun subscription services and choose the pay-per-download option where available. Only 14% would prefer the subscription option, while 49% would stick with the traditional retail channel.