THE NPD GROUP NOTES RECENT INCREASE IN PEER-TO-PEER DIGITAL MUSIC FILE SHARING

PORT WASHINGTON, NEW YORK, January 16, 2004 – According to The NPD Group, music downloading via peer-to-peer (P2P) services began to increase in October 2003 and remained up in November 2003.

"The music industry was heartened to see that their campaign to reduce or eliminate file sharing on P2P networks appeared to be working," said Russ Crupnick, vice president of The NPD Group. "Recent information from complementary data services at NPD, however, noted an increase in the number of households and individual consumers using P2P services to download digital music files."

NPD's MusicWatch Digital service, which monitors household usage of P2P services directly from panelists' PCs, reports that the number of households downloading digital music files was up 14 percent in November 2003 compared with September. This up-turn comes after six straight months of declines in digital file acquisition, since April 2003 when the Recording Industry Association of America (RIAA) began a well-publicized campaign threatening individual file sharers with legal action resulting in fines.

Consumer-reported information gleaned from NPD's ongoing MusicLab survey confirmed the upward trend noted by MusicWatch Digital. MusicLab reported that 20 percent of the population 13 years of age and older said they downloaded music from P2P services in May 2003, 18 percent in July and 11 percent in September. Echoing NPD's MusicWatch Digital data, beginning in November the incidence of individuals sharing files grew to 12 percent. Although the difference of one percentage point appears small, NPD reports that this is a statistically significant increase based on the size of the NPDMusicLab survey sample.

According to Crupnick there are several reasons that might underlie this recent increase in file sharing:

1. Recent enforcement of copyright management has received less coverage of the issue by major consumer media, relative to the activities leading up to the September subpoenas.
2. Fourth Quarter represents the high season for music -- approximately one fifth of sales occur in November and December. The seasonality of physical music purchasing may have a halo effect on illegal music acquisition as consumers download tracks from new releases or make compilations from the flood of new music released in 4^th quarter of 2003.
3. Students have more leisure time during November holidays, and possibly more time to download and share music.
4. Beginning in late October, several high-profile legal music downloading services were launched. There may have been some legal-to-P2P site crossover, as consumers explored legal digital music but drifted into the P2P realm to compare song file availability.

"It's important to keep in mind that file sharing is occurring less frequently than before the RIAA began its legal efforts to stem the tide of P2P file sharing," Crupnick said. "We're just seeing the first increase in these numbers. NPD will continue to monitor whether it's a temporary seasonal blip, or a trend that suggests that the industry should be more aggressive in capping the use of illegal methods to acquire digital music."

Methodology Note: NPD MusicWatch Digital information is collected continuously from the PCs of 40,000 NPD online panelists, balanced to represent the online population of PC users. NPDMusicLab Surveys are conducted bi-monthly among a group of approximately 5,000 respondents aged 13 years and older; results are balanced to represent the U.S. population.

About NPD Music
NPD Music, a division of The NPD Group, provides reliable in-depth perspective on the most important issues facing today's music industry. MusicWatch and MusicWatch Digital are the flagship information services from NPD Music that reports on what consumers buy, as well as where -- and why. These two complementary services provide a detailed look at today's music consumers, covering such critical issues as consumers' habits related to downloading music and burning CDs, key influences on music purchases and customer viewpoints on specific retailers. NPD Music provides the consumer information needed to understand today's music marketplace and discover where music consumers are today – and where they'll be tomorrow.

About The NPD Group, Inc.
Since 1967 The NPD Group has provided reliable and comprehensive sales and marketing information for a wide range of industries. NPD provides critical knowledge on what is selling, where, to whom and why to help our clients make more successful, fact-based business decisions. Today more than 1,300 manufacturers and retailers rely on NPD to help them better understand their customers, product categories, distribution channels and competition in order to help guide their business and positively impact sales and revenues. Information from The NPD Group is available for the following major vertical sectors: apparel, appliances, automotive, beauty, cellular, consumer electronics, food and beverage, foodservice, footwear, home improvement, housewares, imaging, information technology, music, software, travel, toys and video games.

For more information:
Lee Graham
For The NPD Group, Inc.
leegraham@leegraham.biz
212-333-4983