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The LA Times reports that weak CD sales numbers since the musicbiz cartel succeeded in torpedoing Napster, contrast with claims that downloads cut into CD sales.

The Times Jeff Leeds notes:

"So with Napster in retreat, music fans must be buying more albums in stores, right? Wrong. Retailers say their record sales are down 5% to 10% this year compared with the same period a year ago.

"The numbers raise the issue of whether Napster truly represented the doomsday for record companies that some industry executives predicted. And they call into question the Recording Industry Assn. of America's contention that Napster would cause "immeasurable" harm to the business. "

Toldja' so. Virtually all of the heavy Napster users I know maintain that downloading and sampling songs via Napster actually whetted their appetite for going out and buying CDs, and I have witnessed that this was not just rationalization and rhetoric.

One person I interviewed while preparing this article told me: "I haven't bought a CD since Napster went down. I don't listen to the radio, so I've lost touch with what's happening in the music world. If I really wanted to, I could download songs using Gnutella, but it's too much hassle."

Now that Napster is a mere shadow of its former self, at least some of these persons have shifted to other interests than music.

Leeds reports that SoundScan research shows total music sales down about 5.7% from the same period last year, when Napstermania was going full steam.

He notes further that "according to SoundScan, CD sales from January through March 4 were up 5.6% from the period a year earlier. But for the period from March 5--just after Napster began removing copyrighted material from its service--through June 12, CD sales were behind last year's numbers by 0.9%."

As Leeds puts it: "One possible explanation is that Napster's free file exchange encouraged consumers to buy music. Once Napster was ordered to police its music files, the record industry lost a powerful marketing device, " and quotes Napster CEO Hank Barry observing that "Exposure over the Internet prior to a record's release increases sales. They listen to it, they like it, they go and buy it. [Napster users] are the record industry's best customers."

And while hardcore Napster junkies may have moved on to harder-to-use Napster substitutes like Gnutella, Freenet, or Hotline, vast numbers of casual (and even not-so-casual, such as the friend I quoted above) former Napster users have just tuned out entirely. As Jeff Leeds quotes online research firm Webnoize analyst Ric Dube noting: "If they find Napster isn't what it used to be, they don't pack up and move somewhere else to consume music [online]. They consume less music. They play a game. They read a book."

Another likelihood is that a lot of former Napster users are really, really angry with the RIAA and the music intustry for killing off Napster, and are determined to punish thim.

Of course, others contend that the drop in sales is due to other factors, such as a dearth of exciting new album releases. However, any way you cut it, the music moguls' argument that Napster was hurting them financially is looking pretty hollow.

Their problem is their inability to think outside the old paradigms that prevailed when they could control the recorded music world from the top down, as well as a myopic failure to grasp that the Internet doesn't have to be a threat, but can actually expand their consumer base dramatically if they will let it, but I predict that their proposed fee-based substitutes for Napster (which now include a domesticated Napster) are going to flop famously.

MusicNet will combine the online infrastructures of Napster and RealNetworks with content from Warner Music Group, Bertelsmann AG and EMI Recorded Music.

Pressplay will be a joint venture between Sony Corp. and French media conglomerate Vivendi Universal, who have teamed up with MP3.com.

The problem with both is that the record companies will be controlling the agenda and the meter will always be running. It's not gonna work, guys.

The thing about the old Napster was that it was really more akin to radio-listening (as my friend observed) than record-buying. There was no pressure or the sense that your wallet was being siphoned while you browsed. And as has been the case since the advent of music radio, after browsing, many users went out and bought recordings.

Personally, as I have mentioned here before, but it bears repeating, I think that one of the most interesting models that's been proposed is for services like Napster, et al, to charge "micropayments" for download transactions.

Robert Hettinga of the Internet Bearer Underwriting Corp. (IBUC) , a startup established in 1999. was quoted recently in The Atlantic Monthly noting that his firm is developing a technology to execute "functionally anonymous bearer-cash systems that do very small streaming transactions," -- down to a thousandth or even millionths of a dollar.

Hettinga suggests that IBUC micropayments could be a workable solution to the battle being slugged out among consumers, musicians, and the recording industry cartels over music swapping over the Internet. He proposes that users of a service like Napster could pay tiny amounts each time they download a piece of music, which would not be financially onerous, but on sheer volume would allow artists and the recording industry to still make lots of money -- perhaps even more than under traditional music distribution protocols. Sort of like supermarkets, which operate on razor-thin profit margins, but prosper on the economies of scale. Sounds like a good plan to me.

How would it work in practice? In one of his series of articles on micropayments this week, Low End Mac's Dan Knight suggests:

"The best place to start is probably Napster, which already has the infrastructure for dealing with massive numbers of visitors per day. Here's how that model might work.

"Napster would contract with the record companies to make tracks available at a fixed price. Publishers would then put the tracks on their servers, Napster would sell MP3s for maybe 15¢ per cut. The micropayment firm would keep 3¢ from each sale and the record company would get their fee, leaving Napster with a few cents for each transaction they facilitate.

"Instead of buying a whole CD for a few tracks, consumers could buy publisher quality MP3s at a greatly reduced rate and burn their own CDs or copy them to their MP3 players.

"The record company has less CDs to press, encase, sell, and ship. They also have less risk, since they can serve up MP3 files as they are needed and never have to worry about surplus inventory when selling track via Napster.

Fully electronic transactions would also make it easier to track which bands and which tracks are selling, helping to assure that at least some of that money goes to the artists."

For more of Dan's comments on this issue, visit:
http://lowendmac.com/musings/01/0619.html

However, that all may just make too much sense for the bonehead record execs and the litigation-obsessed RIAA to ever get it. Too bad, for everyone. They may have killed the goose that laid the golden eggs.

Charles W. Moore

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