MP3 Is Possible Culprit In CD Sales Slump

Welcome Guest. | Log In| Register | Membership Benefits

March 24, 1999 (4:49 PM EST)

By Andy Patrizio,

The Recording Industry Association of America (RIAA) Wednesday released a report showing a large decline in sales to young demographics, and the association suspects MP3 trading is a culprit.

The report was released just as GoodNoise, one of the major suppliers of MP3 music files, secured $31 million in financing from a group of investors.

The report showed that the 15- to 24-year-old age demographic accounted from 28 percent of overall record sales for 1998. That is down 4 percent compared to 32.2 percent in 1996.

"Potentially, the rise of the Internet as a free entertainment center, and the accompanying availability of free MP3 music files, could be contributing factors," said the report.

But the RIAA said it has no conclusive proof. "We didn't ask respondents 'Are you buying less because you download MP3s,' " said Alexandra Walsh, a spokeswoman for the RIAA. "This age group has been a real stronghold for the industry and it's been dropping, and it seems inexplicable as to why there's a drop off. So it was a common-sense speculation."

The MP3 format is viewed by independent and unsigned artists as a way to promote their work and build a fan base. However, major record labels view it as theft and have been reluctant to let artists use it.

"It's hard to take away something people are getting for free, so what's needed is a technical solution. ..."
-- Alexandra Walsh
RIAA

Last month, rocker Tom Petty released an MP3 version of a song from a forthcoming album on his own, only to have the record label order it removed from the site -- 150,000 downloads later.

The RIAA said people are now getting something for nothing, which makes combating MP3s difficult.

"It's hard to take away something people are getting for free, so what's needed is a technical solution, rather than depending on some sort of behavior modification," said Walsh.

GoodNoise vice president of marketing Steve Grady disagrees. The company just closed $31 million in financing from a group of investors, including INVESCO Private Capital; Weiss, Peck & Greer Venture Partners, VantagePoint Venture Partners, and idealab! Capital Management.

The solution, according to GoodNoise, is to make MP3 as readily available as possible. It sells MP3s for 99 cents per song or $8.99 per album. There are no restrictions on the MP3s released through GoodNoise, which primarily supports independent labels, such as RykoDisc. Half of the $31 million in financing will go to acquiring more songs for release, while the other half will be earmarked for general operating expenses, said Grady.

The 15-to-24 age group is largely college students, who have a combination of a fast and free Internet connections and multimedia PCs, which they can use as a jukebox in their dorm rooms, said Grady.

"It's a game to them," he said. "They have the time on their hands to know the technology and find it. So, there's also a culture around it."

"That's not to say everyone will do the right thing, but I'm not convinced fans will want to rip off their favorite bands," said Grady. "People might feel it's OK to rip off a record company, but if it's coming out of the pockets of their favorite artist, then they might feel differently."