Why steal music when you can stream it?

Illegal file-sharing is down, perhaps because it’s easier to get music legally now.

By , Staff writer

Teenagers have become the music industry’s great riddle.

They are the industry’s torment for downloading millions of songs – be it the Beatles or Britney – without paying a cent. But if record companies can figure out how to make money off a generation reared on free media, teens could well be the industry’s salvation.

So record labels perked up when Paul Brindley, a British online music analyst, recently released a survey showing that the number of teens in Britain who admitted to regular file sharing had dropped from 42 percent in December 2007 to 26 percent in January 2009.

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That’s the strongest indication yet that the tide is turning against unauthorized file sharing, says Mr. Brindley, managing director of Music Ally, a digital music information and strategy company. And it’s not because of strong-arm tactics against illegal downloading or a sudden change of teenage hearts. Rather, the very thing that created the problem of music piracy may help save it – new technology.

In a survey of 1,000 British music fans, Brindley and British research firm The Leading Question found that instead of downloading tracks from unauthorized sources, a growing number are logging on to commercial streaming sites such as YouTube, MySpaceMusic, and Spotify where they can listen to a “stream” of music instantly and legally, though they can’t store the songs on their hard drives.

Music fans aren’t necessarily making a moral decision when logging on to these sites. Brindley points out that the survey results show that kids find services such as YouTube “much more convenient for checking new music than file sharing.”

About 65 percent of teen music fans in Britain are regular listeners to streaming sites. In the United States, the number of teens who swapped music using peer-to-peer (P2P) sites fell by 6 percent in 2008, according to The NDP Group, which analyses online consumer habits.

The trend is far from being a panacea for ailing record labels, which saw CD sales drop 20 percent in 2008, as file sharing in this country and globally continues to climb. The number of personal computers on which one or more file-sharing programs have been installed climbed in the US to 60.5 million in June 2009 from 51 million in June 2006, according to BigChampagne, a music research company that tracks Internet file sharing.

But even as computer use grows and broadband access spreads, the appetite for music piracy that skyrocketed in the early days of the Internet is starting to level off, say experts. A decade ago, Internet users flocked to Napster to fill their hard drives with any song that could be turned into a digital file.

One of the first websites to popularize file sharing, Napster was shut down after the Recording Industry Association of America (RIAA) filed a lawsuit claiming massive copyright infringement. In the years after that lawsuit, the RIAA sued more than 30,000 individuals over unauthorized music swapping.

The record industry recently said it was ending these lawsuits, instead opting to target persistent offenders through Internet service providers. Executives found the legal campaign against individual file sharers expensive, and in some ways counterproductive. The record business suffered from becoming known as “one that sues its customers and is out of step with current technology,” said a recent report on online music from the Pew Internet and American Life Project.

When Napster thrived in the 1990s (it still exists today as a paid site), streaming was barely on the radar and broadband technology was in its infancy. There wasn’t an iTunes music store offering 99-cent songs or an iPhone that could instantly stream music.

The success of streaming websites today is good news for the beleaguered music industry, but a challenge remains: making a profit from these services.

Most people use free streaming services. In the case of Spotify, the European site that will launch in the US later this year, the free version is evidently so good that users are not upgrading to the paid premium version.

“That’s where everybody is stuck,” says Eric Garland, chief executive of BigChampagne. He foresees more people downloading music free of charge than paying for it online. And while legitimate audio streaming may be gaining popularity, he wonders if Europeans are only turning away from file sharing temporarily because of a tough, new government stance against piracy.

Indeed, some say the music industry ultimately may have to embrace the idea of giving away music free and rely on ancillary streams of revenue. In what’s sometimes called the “freemium” model, record labels would allow free downloads and streaming of music while making money off concert ticket sales and merchandising, as well as sales of physical CDs.

Whether that’s a formula for success is an open question, says Mr. Garland, adding that there’s no single prescription for turning around the music industry.

But among the growing proponents of the free approach is Fred Wilson, the influential New York venture capitalist with investments in social networking sites such as Twitter, Meetup, and Etsy.

“We used to wonder if we could ‘untrain’ a generation to steal,” wrote Mr. Wilson on his blog.

“The answer is yes. Just make it easier to get the content they want and they’ll stop stealing.”

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