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Can computers hurt music sales?
May 25, 2000: 8:33 p.m. ET

Swapping software cut CD sales near schools; Napster refutes results
By Staff Writer Franklin Paul
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NEW YORK (CNNfn) - Sharing music files online most likely dampened sales of music compact discs at retail outlets near college campuses during the last two years, even as national CD sales increased, according to a study released on Thursday.

But officials for Napster, makers of the controversial tune-swapping software most often blamed for the rise in file sharing, called the study flawed because it ignored students' options to buy music at malls or online.

The study, conducted by VNU Entertainment Marketing Solutions and released by digital rights management company Reciprocal Inc., concluded that while overall retail CD sales steadily increased between January 1997 and March 2000, sales in more than 9,000 retail stores within a five-mile radius of more than 3,000 colleges declined by 4 percent over the last two years.


Citing data from Hartsdale, New York-based retail tracker SoundScan, the study said sales declined even further at stores near the 67 schools -- such as the Universities of Texas and Tennessee -- that had by late February banned the Napster service. Sales there slipped 7 percent over the past two years.

The study found that while first quarter 2000 national sales are 120 percent of first quarter 1997 national totals, sales for the stores around selected colleges - where higher music file sharing usage is presumed - are only 98 percent of first quarter 1997. First quarter sales were used in an effort to access the most recent available data, and avoid the seasonal bias of Christmas-driven purchasing, the study said.

New York-based Reciprocal said the study is the first to link lower record sales to the swapping of music files at colleges where Napster use is most prevalent. The results will certainly not go unnoticed by Napster's critics, including music industry trade group, the Recording Industry Association of America, whose lawsuit against Napster charges copyright infringement.

"It is now clear that the controversial practices of companies that provide directories and an easy interface to libraries of unlicensed music are in fact detrimental to the growth of the music business and those artists whom they claim to support," said Larry Miller, president of Reciprocal Music.

Napster CEO: Sample was too small

But, in a statement, Hank Barry, interim chief executive of San Mateo, Calif.-based Napster, refuted the study's conclusion. He charges that it excluded large-scale retailers - such as the Musicland chain or Wal-Mart -- and online CD sellers, and fails to prove that the students in question did not opt instead to buy CDs outside of their campus community.

graphic"The problem with the study is that big-box retailers and online retailers are not within the area studied," Barry said. "Overall, record sales are up more than 8 percent year-to-year (but) sales at independent record stores are down more than 4 percent."

"This has to do with consumer choice to shop at large retail stores and online. It has nothing to do with Napster," he said.

Surprisingly, a Reciprocal source agreed that the survey's sample was small and that it excluded big retailers.

"Big box retailers were not included, but some online retailers were, including and CDnow - but Amazon was not," the source said. is the Internet's biggest online music seller.

"Given that consideration, (this study) accounts for really a very small percentage (of retailers) which has led us and SoundScan to suggest that (the sales drop) is due to file sharing," the Reciprocal source said.

Trade group sees merit on both sides

Pam Horovitz, president of the National Association of Recording Merchandisers, the trade group representing music retailers and distributors, said both the spirit of Reciprocal's study and Napster's rebuttal make salient arguments.

"For our members who are in college markets, the (data) doesn't come as a surprise," she said from NARM's offices in Marlton, N.J. "Our members who operate in some of these college towns have said that business is off somewhat." She noted that 65 percent of the nation's record stores are within five miles of college campuses.

But Horovitz added that all music enthusiasts have a growing number of places to get music, from a plethora of online retailers to used CD sellers, whose sales do not show up in traditional retail figures. In addition, more and more people share CDs by "burning" copies on recordable CD players.

Despite the criticism of file sharing, Horovitz said that the practice has its merits for the recording industry.

"You can argue that file sharing is a form of viral marketing, it is in some ways promotion akin to radio airplay," she said. "But what we must pay special attention to is the point when it starts to cannibalize sales." Back to top


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