Jupiter Communications' study points to the benefit of file-sharing software such as Napster.

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Users of networked music-sharing technologies, such as Napster, are 45 percent more likely to have increased their overall music purchasing than nonusers are, according to a new study by Jupiter Communications, Inc. (Nasdaq: JPTR), the worldwide authority on Internet commerce. Record companies must refocus their strategy from litigation to adoption, and incorporate networked music sharing into their distribution channels.

"Because Napster users are music enthusiasts, it's logical to believe that they are more likely to purchase now, and increase their music spending in the future," explained Aram Sinnreich, an analyst with Jupiter. "But when we conducted our consumer survey, controlled for key music purchasing factors-such as existing spending level, age, income, gender, and online tenure-we still found that Napster usage is one of the strongest determinants of increased music buying."

Since the launch of sites and software such as Napster and Gnutella, record labels and intellectual property owners have demonized networked music sharing, even as it has gained enormous traction among consumers. However, these players have yet to capitalize on the upside of such sharing technology.

"An inherent flaw in the Recording Industry Association of America (RIAA) argument against Napster is that the association's supporting research shows a decline in record sales in college areas, with high Napster usage," said Sinnreich. "However, the RIAA did not clarify that the most attrition took place before Napster's launch, and the analysis did not account for channel shift to online transactions that would have occurred independent of Napster's existence."

Internet music distribution provides a direct marketing and distribution conduit to individual music fans, and offers businesses the ability to learn about consumers' tastes and habits through its back channel; networked music sharing delivers on this promise better than any other online music application to date. According to Jupiter's research, if the music industry were to let players like Napster stand, it would drive incremental sales. But, if the industry partnered with networked music-sharing technology companies, the benefit would be exponentially greater.

Sinnreich added that labels must work to develop networked music sharing as part of their offering- understanding that their challenge is to get consumers to shift to the labels' sponsored channels instead of existing services such as Napster and Gnutella. While exclusive content, artist chats, and album art are helpful in promoting such channels, the trump cards for consumers' adoption must address two features: guaranteed file quality and virus protection. Consumers identified these two features as most important in their decision to pay for a music subscription service above other features such as discounts, newsletters and deep artist information.

The Jupiter Consumer Survey queried more than 2,200 online music fans on whether the money they spent on music purchases had increased, decreased or remained the same since they began visiting music destinations on the Web. Jupiter analysts report that only cash-strapped, computer-savvy users, ages 18 to 24, who spend less than $20 on music within a three-month period indicated that they were likely to remain at a constant purchasing level despite online music use.

 

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