Angus Reid study: Napster is improving CD sales

It’s been the one suspect element tainting the Recording Industry Association of America’s (RIAA) lawsuit against on-line song-swapping purveyors Napster and the free exchange of digital music files over the Web isn’t hurting CD sales – it’s improving them.

Such is the quandary the RIAA finds itself in after the Angus Reid Group released the results of a survey which found 64 per cent of MP3 download users have not changed their CD purchasing habits, while another 22 per cent said they’ve increased the amount of discs they purchase from retailers as a direct result of using Napster.

The RIAA lawsuit against both Napster and continues to drag though the U.S. Federal Court system. The RIAA – the U.S. recording industry trade organization which represents both major label artists as well as Mecca record companies Sony, Time-Warner, Universal/Polygram, BMG and EMI – claims it sued Napster because it launched a service that enables and facilitates the piracy of music on an unprecedented scale. Much to the chagrin of the RIAA and its freeware-crushing supporters, Edward Morawski, vice-president of the Angus Reid Group in New York, said his firm’s latest results prove there is no validity to that claim.

Increased exposure

“CD sales have not diminished. The RIAA claims Napster and similar Web sites are hurting their business but there’s no real data to prove that,” Morawski told ComputerWorld Canada.

“It’s anecdotal evidence that’s hurting their business. If you think about it, the music industry has thrived and survived based on exposure. Napster and are another way to provide exposure for the RIAA’s members.”

But the RIAA would beg to differ. On the organization’s Web site, it states: “The overwhelming majority of the MP3 files offered on Napster are infringing – and the district court found that Napster knows this and even encourages it. Napster is thus enabling and encouraging the illegal copying and distribution of copyrighted music. Just because Napster itself may not house the infringing recordings does not mean Napster is not guilty of copyright infringement. Copyright law has long recognized that someone who materially contributes to infringing activity, with knowledge of that activity, is liable for copyright infringement as if that person did the copying him or herself.”

Moreover, a recent ComputerWorld Canada Reader’s Poll found that 71 per cent of respondents believe Napster represents the worst of the Internet and that it’s akin to organized theft. Only nine per cent of our readers believe the embattled on-line entity represents the best of the Internet and that Napster should party on long into the future.

CD sales on the rise

Morawski refuted the RIAA’s charges of harm by Napster.

“There is no reliable data to suggest that Napster’s services have had a negative impact on CD sales,” he continued. “Coupled with our survey, people are buying more CDs as a result of Napster. The RIAA may be fighting a friend rather than a foe; they may actually be trying to kill something that is a benefit to them.”

IDC Canada analyst Kevin Restivo in Toronto echoed Morawski’s insights. Restivo said Napster has proven to be a boon for music retailers and it has also revealed the critical need for governments to reform their copyright protection laws in the face of the information age.

“Napster is revolutionary, it’s great technology,” he said. “They’ve let the genie out of the bottle now – Napster’s future may be murky but eventually it’ll force the record industry to reform itself.”

What makes the RIAA lawsuit against Napster even less palatable is the fact its five core, major label members recently had their wrists slapped by the U.S. Federal Trades Commission for price-fixing CDs along with certain music retailers and bilking consumers out of about US$480 million over the last three years. If Napster’s modus operandi is immoral and illegal in the eyes of the RIAA, how does it view its members monopolizing ways masquerading as a minimum advertising price policy?

Price war

According to the FTC, the RIAA’s label members required music retailers to advertise CDs at or above the minimum advertised price (MAP) set by distribution companies (which are owned by the same record labels) in exchange for substantial cooperative advertising payments.

The restrictions applied to all advertising schemes and even to those paid for by the music retailer. Under the bogus MAP policy, music retailers would lose millions of dollars per year if they failed to follow the restrictions. For instance, in the early 1990s when consumer electronics stores got into the CD-selling business and undercut traditional music retailers with low prices to gain marketshare, long-time music retailers countered by lowering their prices. This retail price war led to lower CD prices in general and the charge for popular CDs dropped to about US$9.99. The FTC contends the record companies adopted their MAP policy to quash that CD price war.

“These settlements [that the FTC reached with each major label] will eliminate these policies and should help restore much-needed competition to the retail music market, consisting of US$15 billion in annual sales,” said FTC chairman Robert Pitofsky on May 10. “[This] news should be sweet music to the ears of all CD purchasers.”

Despite being contacted on several occasions by ComputerWorld Canada, the Washington-based RIAA did not return calls.

The settlements the FTC reached with the RIAA’s label members prohibits all five companies from linking any promotional funds to the advertised prices of their retailer customers for the next seven years. For the 13 years succeeding that, Sony, Time-Warner, Universal/Polygram, EMI and BMG are prohibited from conditioning promotional money on the prices contained in advertisements they do not pay for, as well as the termination of relationships with retailers based on that retailer’s prices.

Frank Koblun, director of e-commerce for in Toronto, said the on-line MP3 file-swapping phenomenon has not had any noticeable impact on any of his company’s street stores.

“There’s no hard data to suggest anything regardless of which side of the fence you sit on,” Koblun said. “There are some very good points about Napster and I don’t think it will go away. [The record companies] are trying to control things too much; the real onus is on the copyright holders as they have to come to terms with this and learn [new ways] to be compensated.”

Koblun added HMV – one of Canada’s more prominent music retailers – is investigating the possibility of offering a service similar to Napster, albeit for a monthly subscription fee.

In the meantime, the RIAA’s contentious lawsuit against Napster continues as the 9th U.S. Circuit Court of Appeals said a three-judge panel will hear the case sometime between Oct. 2 and Oct. 6 in San Francisco. Furthermore, the Consumer Electronics Association (CEA), the Digital Media Association (DiMA) and NetCoalition all have wandered into the fray by placing separate arguments which go a long way to support Napster in its battle against the RIAA.

Also supporting the Napster plight is a college campus study released on Aug. 7 by Greenfield Online and YouthStream Media Networks, which stated that while more than half of U.S. college students (58 per cent) have used Napster to download on-line music, 79 per cent still buy CDs.

“When the initial court injunction against Napster was pending a few months back, we received our fair share of e-mail from customers who said they would be boycotting our stores,” Koblun remarked. “But we also received e-mails from customers who said they didn’t care what became of Napster.”

The Angus Reid poll also found that 75 per cent of American adults were aware of the RIAA’s lawsuit against Napster and that 54 per cent think downloading copyrighted music for free is morally wrong. However, the survey also discovered most Americans who disapprove of Napster are over the age of 35, while the vast majority of Napster’s users fall between the 16- to 29-year-old age bracket.