May 25, 2000 6:20 AM PDT

Study finds Napster use may cut into record sales

A study released by record industry retail tracker SoundScan shows declining CD sales at stores near universities, and some are pointing fingers at online music-swapping software such as Napster.

The record industry has long warned that easy access to pirated music online would torpedo sales, despite industrywide figures showing a rise in CD sales in recent years.

As reported earlier, SoundScan division VNU Marketing tested the theory by looking specifically at sales in stores near universities, where online music has been more widely adopted than in the general public. In those stores, SoundScan data shows that record sales have actually dropped 4 percent in the past two years. In stores near the 67 colleges that have banned Napster, citing an overload on their internal networks, sales have dropped 7 percent in two years.

Those numbers compare with an overall sales growth of about 20 percent across the music retailing industry.

"It looks like Napster clearly has an impact on sales in the U.S.," said John Schwarz, CEO of digital rights management firm Reciprocal, which commissioned the study, released yesterday. "Coincident with the arrival of MP3 and Napster, these sales take a pretty severe dip downwards."

It is unlikely that the fierce debates over the effects of MP3 and Napster will so easily be laid to rest, however.

Napster and MP3 backers have long argued that giving people a taste of music online could actually boost record sales, as listeners are exposed to music they might never have heard otherwise. Meanwhile, the record industry has blamed widespread online piracy, saying that songs traded online translate into money that doesn't go into artists' pockets.

Even today's data can be interpreted in several ways, and it's not clear that online piracy is the culprit.

The drop in college music store sales was more pronounced in 1998 than in 1999--a year before Napster was written, released and began spreading quickly across college campuses.

In addition, students say other competition, such as online music stores and rewritable CD copies of store-bought CDs, may be responsible for the drop in sales.

"The majority of my friends buy their CDs online," said Jon Barsook, a student at the University of Southern California. "If the study says the music stores near the colleges have seen a drop in sales, that doesn't mean that college students are not buying records."

Store managers say they may have seen some minor effects. But few point fingers at Napster or other file-swapping software.

"There's definitely been an effect," said Jim Sugarman, general manager of the Tower Records store in Berkeley, Calif., a few blocks from the crowded University of California campus. "But not an intense one. We've probably seen the most effect on singles sales."

Singles are now a small part of the store's business, averaging roughly 1 percent to 2 percent of sales, Sugarman added.

The nearby Amoeba Records, a warehouse-sized new- and used-record store that has long served as a mecca for Bay Area music enthusiasts, says it hasn't seen any noticeable effect.

"We haven't noticed any real decline," said store manager Alan Lewites. "Our business has been pretty consistent."

Nor are many independent-store owners sympathetic to the record industry's warnings about online piracy.

Jack Kirk, who manages independent CD store Dr. Wax near Northwestern Napster wildfire University, says the labels are reaping the rewards of their own pricing policies. Cash-strapped students have turned to online music swapping because the record companies have priced the CDs of many popular artists out of students' reach, he said.

"It costs major labels less than $1 to make a Pearl Jam album, but the list prices are nearly $20," Kirk said. "They've precipitated this themselves--it's ridiculous. The major label companies are (run by) extremely evil people; I'm sorry, but there's no other way to say it."

Managers from other independent stores around the country said their businesses have been affected far more by the growth of big chain stores or by online retailers, such as CDNow and, than by online music-swapping software.

"The findings come as no surprise and confirm our worst fears," said Amy Weiss, a spokeswoman for the Recording Industry Association of America (RIAA), which is suing Napster. "This demonstrates the importance of protecting artists' rights on the Internet."

Hank Barry, Napster's new interim CEO, criticized the scope of the study. "The problem with the study is that big-box retailers and online retailers are not within the area studied," he said in a statement. "This has to do with consumer choice to shop at large retail stores and online. It has nothing to do with Napster."

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CNET TV: Napster controversy

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Whatever the interpretations of the sales figures, the study is likely to show up in court and in Congress, as judges and lawmakers puzzle over how to treat software like Napster in the future.

A congressional committee heard testimony yesterday from Napster foes and fans, looking specifically at the online music world's effect on small record labels and retailers.

The Progressive Policy Institute, an arm of the influential Democratic Leadership Council, is also asking Congress to change copyright laws in ways that would undermine the way Napster now operates online.

The study was based on a survey of sales figures at more than 9,000 retail stores and looked at more than 3,000 colleges and universities. SoundScan provides the statistics most widely used by the record industry to track retail sales.


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