More CD Buyers Try Legal Digital Music Services, NPD Finds

Legal digital music usage more than tripled among CD-buying consumers in 2004; paid sites attract heavy music shoppers; users of paid digital music services less likely to download from file-sharing sites

PORT WASHINGTON, NEW YORK, May 19, 2004 - According to the latest data from The NPD Group, an increasing number of CD buyers are also purchasing from legal digital music download services, such as iTunes, Buy.com and others. Legal digital music services also appear to attract consumers who tend to purchase more CDs than the average consumer. This comes at a time when fewer of these consumers are using peer-to-peer (P2P) services to share music files illegally.

Just under five percent of CD buyers reported using a legal service to purchase music during the first quarter of 2004, which is nearly three times the level NPD observed among music buyers during the same period in 2003 (1.7 percent). Among music buyers who purchased both physical CDs and a song download from a legal service, the likelihood that they also downloaded a song illegally fell dramatically, from 64 percent last year to 42 percent in 2004.

Who’s jumping on the legal download bandwagon?

Consumers who downloaded from a legal service or became paid members of subscription services showed only a slight reduction in the number of CDs that they purchased at retail. The average consumer who paid for digital music as well as CDs purchased less than one fewer CD in 2003 compared to 2002.

"Paid services like iTunes and Rhapsody appear to be attracting core music buyers, which can create a firm foundation for legal digital music purchases," said Russ Crupnick, president of NPD Music. "To date, NPD data shows that there has been a small reduction in sales of CDs; however, that decline might be offset by the overall value of the digital customer and the downturn in illegal file sharing."

According to NPD there were other notable differences in CD purchase behavior, depending on how consumers used specific online music services. CD buyers who also used an online music subscription service, such as Rhapsody, in the past twelve months purchased an average of 11 CDs last year; those who had paid for a music download from legal download site, like iTunes, purchased 10 CDs; those who used a P2P file-sharing site purchased eight CDs; and those who did not download or stream music from the Web bought six CDs.

"Our research shows that it’s the people who are really into music that are beginning to adopt paid digital services as an additional way of acquiring and enjoying music, and so far these services are living side by side with traditional CDs", Crupnick said. "As the industry matures and digital music becomes even more main stream, it remains to be seen just how much paid digital music will affect the market for CDs."

Methodology note: Data was derived from two NPD sources:
1) NPD MusicWatch, which provides weekly tracking of music purchases from a panel of consumers
Demographics, shopping habits, retailers, purchase motivators and pricing, based on more than 100,000 transactions captured annually.
2) NPD MusicWatch Peer-to-Peer Study, a survey covering use of digital music services that was conduced in February 2004 among a sample of 5000 individuals.

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.

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.

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