Internet piracy still a concern

By Alex Veiga
Associated Press

LOS ANGELES — Online music file-sharing and other forms of piracy haven't gone away, but a gradual turnaround in U.S. music sales that began in the fall has picked up in the first quarter of this year, resulting in the industry's best domestic sales in years.

Gregory Dobbins looks for a CD at Aron's Records in the Hollywood area of Los Angeles. Overall U.S. music sales were up in the first three months of the year by 9.1 percent over the same period in 2003. Associated Press

Album sales were up 9.2 percent. Sales of CDs, which represent 96 percent of album sales, rose 10.6 percent. For the first time since 2000, two recording artists — Norah Jones and Usher — managed to sell more than 1 million copies of their albums in a single week this year.

"We've had a big run so far," said Geoff Mayfield, director of charts and senior analyst for Billboard Magazine. "Because we've had three years of erosion, at least for the first eight months of the year, it will be relatively easy for the industry to post increases."

The sales data are a bolt of encouragement to the industry, which was hit by a three-year sales slump it blames largely on file-sharing. The downturn prompted a wave of restructuring by record companies and thousands of layoffs.

Cary Sherman, president of the Recording Industry Association of America, called the first-quarter figures "good news," but cautioned that the results were measured against a dismal period.

"The numbers of 2003 were down about 10 percent to 12 percent from the year before," Sherman said. "If we didn't have that kind of increase it would be really terrible."

In 2001, sales were down 3 percent. The next year, sales dropped 11 percent. Last year, until September, sales were down 8.5 percent, but the pickup in sales at the end of the year narrowed the total decline for 2003 to less than 4 percent.

"This is an industry that is very much, very, very cautious, because until this trend continues for a much longer period, they're not going to take anything for granted," Sherman said.

The burgeoning online music market accounted for the sale of more than 25 million tracks between January and March, eclipsing the 19.2 million tracks purchased in the last six months of 2003, according to Nielsen SoundScan.

Stores also saw gains. Chain stores' music sales were up 7 percent, while independent music retailers saw a 3 percent increase. Discount chains such as Wal-Mart, Target and Kmart posted a 13 percent jump in sales compared to the same period last year, according to Nielsen Soundscan.

"There were a couple of major releases that certainly pushed this quarter," said Jesse Klempner, owner of Aron's Records in Hollywood. "It's been down the last two years; this is an upswing."

Industry observers said no single factor has driven the turnaround.

Mayfield sees similarities with the industry's slump 20 years ago. Sales of disco music dried up after the dance scene fell out of vogue in the early 1980s. In the late 1990s, the Backstreet Boys, 'N Sync and Britney Spears drew millions of teenage fans who had been out of the music marketplace, but sales didn't keep up as the audience got older.

Online file sharing and other digital piracy persist, but a gradual turnaround in U.S. music sales that began last fall picked up in the first quarter of this year, resulting in the industry's best domestic sales in years. Associated Press

He also draws comparisons between the loss of eight-track sales in the early 1980s and the phasing out of cassettes in this decade, a format that provided customers with a cheaper alternative to CDs.

The early 1980s and the early part of this decade were also marked by economic downturns. Conversely, the music industry was better able to weather the recession in the early 1990s because of CD sales driven by consumers replacing their vinyl record and cassette tape collections.

Still, the recording industry has focused on Internet piracy, and its trade group cites surveys that indicate the number of people engaging in file-sharing has declined since the group began suing computer users.

But other research shows millions continue to download music, movies and software over peer-to-peer networks.

A recent study by two professors at Harvard University and the University of North Carolina at Chapel Hill, may suggest how the industry's sales could be improving amid file-sharing.

The study, conducted over 17 weeks in fall 2002, was based on data compiled in the user logs of two OpenNap servers that host traffic by U.S. users of file-sharing software programs like WinMX.

The researchers plucked 680 songs on albums by artists like Eminem and compared how often their songs were downloaded on the network to their weekly sales figures.

The authors concluded that file-sharing has a statistically insignificant impact on record sales.

"If downloads replace sales then spikes in downloads should hurt subsequent sales," said Felix Oberholzer, associate professor of business administration at Harvard Business School and co-author of the study.

The findings are disputed by researchers whose studies, mostly based on consumer surveys and willing monitoring of computer users, have shown music fans who download songs for free pay for music less often.

Sherman said the study was too narrow to measure the overall impact that file-sharing has on sales. He also said its findings are inconsistent with what survey respondents have said about their own file-sharing.

For his part, Klempner laughs at the assertion that file-sharers don't hurt music sales.

"I've seen no evidence in our store to support that," he said. "I've had people walking in here saying 'I used to spend $300 a year on music and now I don't need to.' "