Teens Abanding CD Format

The amount of music that consumers acquired in the U.S. increased by six percent in 2007, say researchers at the NPD Group. But there are key format changes. Legal downloads now account for 10 percent of the music acquired in the US. market.

At the same time, there was a continued decline in CD sales, which resulted in a net 10 percent decline in music spending from $44 to $40 per capita among Internet users.

NPD estimates that one million consumers dropped out of the CD buyer market in 2007, a flight led by younger consumers. In fact, 48 percent of U.S. teens did not purchase a single CD in 2007, compared to 38 percent in 2006.

The percent of the Internet population in the U.S. who engaged in peer-to-peer file sharing reached a plateau of 19 percent last year; however the number of files each user downloaded increased, and P2P music sharing continued to grow aggressively among teens.

Twenty-nine million consumers acquired digital music legally using pay-to-download sites last year, an increase of five million over the previous year.

But note: sales growth was driven by consumers between the ages of 36 and 50, reflecting an aggressive adoption rate of digital music-players by users in this age bracket in 2007.

Reflecting the growth in that sector of the market, Apple’s iTunes Music Store became the second-largest music retailer in the U.S. after Wal-Mart, based on the amount of music sold during 2007 (based on a 12-track CD equivalency for music track downloads).

Music Industry "Goes Open" to Make More Money

One of the odd justapositions out there right now is the recent move by music companies to drop encryption measures (digital rights management) online music sales through Amazon.com as a way of increasing sales. Given the general vested interest in protecting content from copying, this is a bit strange.

Why would music labels voluntarily drop DRM measures that make it harder for users to port their music around? In this case, a move that essentially is more open is a competitive measure. Apple, which uses a DRM format to restrict downloaded music to playback on its own devices, essentially has gotten too much market power in the music business, the studios think.

And in this case, one way to wrest back more control is to stimulate sales of unprotected music through rival retailers such as Amazon.com.

Amazon MP3, the DRM-free music store of Amazon.com, now sells DRM-free MP3s from the four major music labels - EMI, Universal, Warner Music, and Sony BMG - and 33,000 independent labels.

Apple iTunes has more than two-thirds market share of paid online music donwloads.

The top 100 songs at Amazon MP3 come at a price of $0.89 each and most other tracks are offered at a range of $0.89-$0.99, underpricing iTunes titles which are sold for 99 cents a song.

It's a bit unusual to find any industry's leaders pushing a trend towards openness, rather than upstarts. But that's what happens when an upstart becomes too successful in a new line of business. If "open" sells better than "closed," they'll try it, despite an obvious interest in copyright protection that might be furthered by DRM measures.

Of course, the problem with DRM is that it angers legitimate customers as much as it deters piracy. It is a blunt instrument.

Backdoor Sony music MP3s

Sony's music download service uses the Windows Media Audio (WMA) format, not MP3. So it is interesting to find this bit of advice on the download site about how to take the copy-protected Sony music and transfer it to an iPod, an operation that is the equivalent, after a bit of work on the users' part, to supporting an MP3 format free of digital rights management.

"Attention iPod users:

Our download service provides files in the WMA music format or the WMV video format, which is not supported by Apple Macintosh computers. To use your music with an iPod, simply follow the steps below:

1. Save each downloaded song to your PC
2. Burn a music CD (in CDA file format)
3. Import the music from the CD into iTunes
4. Update your iPod"

If this forecast by Strategy Analytics is correct, most of the action in the music download business, exclusive of phone-specific ringtones, will not be generated by mobile service providers.

Some Progress on Music Front, Unless You are Apple

Warner Music has decided to offer its complete catalog, free of digital rights management, through Amazon's new MP3 store. EMI, Universal, and Warner now offer their catalogs in DRM-free digital formats, leaving Sony BMG the lone major music giant still clinging to the DRM approach. Amazon now claims to offer for than 2.9 million songs in MP3 format from over 33,000 unique labels.

Now, with the move to MP3, the labels that have chosen to open their music have a way to encourage multiple download services to flourish, keeping labels safe from being dominated by any single digital distributor, namely iTunes.

Does Music Industry "Get It"?

as someone who arrogantly and wrongly has accused whole industries of "not getting it" at points in the past, I never like to presume I understand executive thinking better than they themselves do.

What sometimes appears as "cluelessness" often has more to do with deliberate timing. and rational calculations about how long to let one revenue model atrophy before heating up a replacement revenue model that will cannibalize the older model.

So let me be charitable. Perhaps U.S. music executives do have a plan for changing their business model and packaging. Perhaps they are executing on that plan even now.

Album sales declined 9.5 percent last year, while digital song sales grew 45 percent, according to Nielsen SoundScan. Physical product sales were down 15 percent, including sales of "singles."

So maybe the issue is simply figuring out better ways to handle digital rights that aren't unfriendly to consumers who have paid for their music, nor damaging to copyright holders. It's a tough problem, to be sure.

And the problems extend far beyond copyright issues. As someone who has made a transition to iPod as my primary music playback system, and as someone whose PC-embedded hard drives need to be replaced once a year or so, the issue of storing and managing the music collection is a serious problem.

The reason, of course, is that each iPod syncs with just one hard drive. Lose that hard drive and one has two options: completely erase the contents of the iPod, or never change the data already on the iPod.

So now I have to take two paths to make sure the music isn't lost: store the copies on an external hard drive that hopefully "never" dies; and then keep the compact disk as well, since the external hard drive will ultimately fail, forcing me to restore or simply forget about the music stored on it.

As a simple music customer, this is a problem. Unless I have physical media backup, the music always is at risk of loss, for mechanical reasons. But keeping those CDs is not ideal, either. And the process of restoring lost music is time-consuming. So music storage "in the cloud" seems promising, at least to me.

RIAA Suit: Not as Bad As First Thought

Engadget has done some digging and reports that the Recording Industry Associaton of America's lawsuit against Jeffery Howell is not for ripping CDs to an MP3 player, but to pedestrian illegal downloading. While we might disagree about the practice, RIAA is within its rights to pursue that sort of action.

So it appears the difference is the public assertion, as part of the suit, that MP3s ripped from legally owned CDs are "unauthorized copies." That remains the more critical issue. Is that sort of thing, done for personal use by the legal owner of a music CD, fair use or not?

MP3 Challenges Business Model

We assume iSuppli is not far off the mark in publishing this forecast of MP3 player shipments. And since the Recording Industry of America seems intent on declaring war on sideloading of music, one assumes the goal is to take control of the revenue model for MP3 downloading, forcing users to pay for downloads rather than sideload.

While acknowledging that there are copyright issues involved, there also are technologial issues. Precisely to avoid its use as a mass copying device, every Apple iPod, for example, allows linking to each iPod to just one PC and its hard drive. Which is fine if one's hard drive or CPU or input devices never fail. If a user's PC does become unusable, any iPods linked to that PC now have a problem. They no longer can sync. Which means the devices are permanently loaded with exactly what is already on them, or must be erased and synced to whatever new PC a user designates.

That means reloading all of the original collection of music.

Alternatively, if one loses the use of the MP3 on which purchased downloaded music has been loaded, there might be no legal way to move the music to an alternate MP3 player when the original MP3 player itself dies.

Both of these sorts of technical issues must be confronted by MP3 music users. In essence, the Recording Industry of America argues one should be able to buy a music CD, but only be able to play it on one device: a home audio system but not on one's vehicle audio system, for example.

There are copyright issues here, to be sure. But there also are major end user technology issues dealing directly with personal use of legally-obtained music. And the ability to copy is essential is a "purchase" is to be anything other than a "rental." In other words, if a user "buys" a song, but then cannot transfer the song to another playback device when the original hard drive dies, is that really "ownership" or simply a "lease of unspecified but limited duration."?

Music Industry Fights Legal Music on iPods, PCs

How long can an industry that sues its own paying customers thrive or survive? In what appears to be an escalation of on-going legal efforts, the Recording Industry Association of America has sued Jeffrey Howell, a Scottsdale, Ariz., man who kept a collection of about 2,000 purchased music recordings on his personal computer, reports Marc Fisher, Washington Post staff writer.

The RIAA argues it is illegal for someone who has legally purchased a compact disc to transfer that music into his or her own computer. By extension, one would assume the RIAA also opposes sideloading music onto an MP3 player.

That is going to be problematic if digital music downloading continues to grow, as iSuppli and virtually every other research outfit argues.

The RIAA argues that the MP3 files Howell made on his computer from legally bought CDs are "unauthorized copies" of copyrighted recordings.

The Howell case was not the first time the industry has argued that making a personal copy from a legally purchased CD is illegal, says Fisher.

But lawyers for consumers point to a series of court rulings over the last few decades that found no violation of copyright law in the use of VCRs and other devices to time-shift TV programs; that is, to make personal copies for the purpose of making portable a legally obtained recording, Fisher notes.

Digital media has proven to be a headache for copyright holders, to be sure. In a previous era where only imperfect analog copies could be made, and recording was cumbersome, the issue was inherently limited in scope. Digital technology of course creates an infinitely-bigger problem, in part because copies are identical and because it is much easier to copy.

The problem is that common sense suggests one should not have fewer rights in a digital domain than in the analog domain being displaced. That is to say, one should not find that legal personal uses of media in the analog domain are illegal in the digital domain.

That's essentially what the RIAA is arguing. There' a "moral hazard" here, as economists might describe it. If any established code of conduct, law, regulation or practice is routinely violated often enough, behavior changes. What formerly was seen as "prohibited" now is seen as "right."

While it is understandable that the RIAA wants to protect a business model, it isgoing about things in an ultimately destructive way by making war on its customers. The RIAA might think it is within its rights to restrict copying of a single user's legally-bought music to that user's own MP3 player. Users do not agree.

So by insisting on defense of its rights, seen as a violation of fair use by users, the RIAA creates a climate of greater "lawlessness," as users simply will lose all respect for the RIAA's position.

Boomers Buy More than 1/3 of all Music

The trick is to get them to buy digital downloads or music subscriptions as well as CDs, which they buy in great quantities. More than 70 percent of the 76 million baby boomers in the U.S. report buying music in the past year, making it the most important buying segment for CDs and an increasingly important market for digital downloads, according to Russ Crupnick, entertainment industry analyst for The NPD Group.

Baby boomers born between 1941 and 1964 now account for a third of all music sales. About 68 percent buy CDs. About 26 percent purchase both digital music and CDs, while just six percent purchase only digital music downloads.

Nearly 40 percent of boomers report that they regularly visit the music retailers or the music section of retail stores.

NPD believes more attention to the boomer segment could yield $700 million to $1 billion in potential incremental sales of both CDs and digital downloads from baby boomers.

Nothing personal: Just don't put them on iPod billboards!! That would not, as they say, be a pretty picture