Apple iTunes Remains Dominant

Napster’s share for the same time period was 11 percent, while MusicMatch, RealNetworks and Wal-Mart each reached a six percent share.

“Our research suggests that at this stage of the business it’s not so much about building share as it is about creating demand for paid downloads universally,” said Russ Crupnick, vice president of The NPD Group, Inc. “The overriding challenge for paid music download services is to first make the concept enticing to a wider audience and then to build loyalties to a specific service.”

The number of consumers paying for downloads reached a peak of 1.3 million in April 2004. Said Crupnick, “over the 18 months since iTunes launched, paid music download services have been hoping for huge increases in paying customers; however, the number actually doing so has declined to about one million users per month.” According to NPD, this statistical downturn coincides with the end of promotional periods offered by several of these services, in which consumers were offered trial price incentives.

“Building demand for paid music download services requires even greater investment in consumer promotion, as well as broadening partnerships with traditional music retailers and consumer goods companies,” said Crupnick. “We’ve seen that promotion works, but it’s had a short-term effect so far, which is typical for traditional consumer goods. The trick is in phasing promotions, so that there is a cumulative positive effect on the target market.”

Over the past twelve months, households with a member using a peer-to-peer (P2P) site to download music for free has ranged from 4.7 million to 6.4 million per month, although NPD has noted generally higher levels since March 2004. The recent rise in P2P usage mirrors an overall increase in various digital music activities.

Compared to the end of 2003, NPD has noted more digital music activity in a number of areas. For example, consumers are more likely to rip music to their computers (9 percent in July versus 7 percent in December) and to burn music to CDs (14 percent versus 10 percent).

“Consumers who have used paid music services tell NPD that they appreciate the ability to conveniently purchase individual songs,” Crupnick said. “They also see benefits in quality and security compared to free peer-to-peer (P2P) alternatives.”

Methodology Note: NPD MusicWatch Digital information is collected continuously from the PCs of 40,000 NPD online panelists, balanced to represent the online population of PC users. NPDMusicLab Surveys are conducted bi-monthly among a group of approximately 5,000 respondents aged 13 years and older; results are balanced to represent the U.S. population.