Digital Music is Different

The music industry still faces challenges in attracting and maintaining customers to the new digital formats, according to the latest data from The NPD Group, presented recently at the Music 2.0 conference in Los Angeles. Consumers attach different values to CDs and digital formats, requiring different marketing approaches.

NPD Senior Account Manager Isaac Josephson said that sixty-two percent of Internet-enabled households currently have digital music files saved on their PCs. 'That means that among regular Internet users who have been online during the past 30 days there's a potential audience of 43 million domestic households with at least some level of digital music savvy. This represents big opportunity for digital music retailers - especially if they can find effective ways to convert those using free P2P services'.

'Conversion rates' from users trying a particular service and going on to become a regular user of that service are still relatively low at twenty percent (around half that for P2P services), and only two per cent of US households with Internet access are trying such services each month. Josephson says that two out of every three P2P users who try legal services continue to use P2P services afterwards. 'The legal services need to convincingly articulate the key features and consumer benefits against free P2P alternatives'.

The industry is targeting younger demographics, but at present NPD found that teens are somewhat less drawn to legal services than are older consumers. Teens age 13 to 17 represent a 15% share of physical music (CD) purchases and 21% of P2P usage but only 12% of legal service users. By contrast adults age 26 to 35 represent 21% of all CD sales, 19% of P2P users and fully 25% of legal service users.

Back catalog sales, as opposed to new releases, are a much more important component of digital music sales than they are of CD sales. Sixty-seven percent of the content acquired from P2P is catalog, versus 33% for new releases, with corresponding figures for paid music services 63% and 37%. Josephson says there are two normally understood reasons for this, the limited shelf space available to brick-and-mortar CD retailers and the desire of some consumers to 'build a more robust digital collection of their favorite music one track at a time'.

The research findings raise questions about two key music industry worries, piracy and the possible reduction of the perceived value of physical CDs - on the latter, CDs have a higher perceived value in consumer's minds. According to Josephson, 'If consumers are using digital, in part, to build collections and sample new music, then the digital purchases may have an entirely different consumer value. As such, the music industry might want to come at consumers with a different value proposition for digital music vis-à-vis CDs'.

Results are based on three data sources. For NPDMusicWatch Digital, 10,000 households agreed to install software on their home computers that lets The NPD Group monitor digital music activity. NPDMusicWatch Tracker questions 1,000 music buyers each week about what they bought and where. In addition, NPD conducts Specialty Studies, the Digital Music Study, Media Study and Brand Study. The company's web site is at www.npdworldwide.com

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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