Legal Music Downloads Rise, But P2P Sharing Still A Threat

Digital music sales from services like iTunes registered solid growth in 2006, consumer research firm NPD Group reports, but that growth is overshadowed by the extent to which digital music files are traded illegally.

The total number of songs online in 2006 doubled to 4 million. Single-track downloads had a huge volume of approximately 795 million, according to the International Federation of the Phonographic Industry "Digital Music Report 2007." The U.S. accounts for the bulk of those downloads, with 582 million single tracks sold online in 2006.

By the end of 2006, 47 million U.S. households had at least one member who downloaded, ripped, burned, played or uploaded digital music, NPD Group says. Of that, 15 million obtained at least one piece of digital music from a peer-to-peer (P2P) file-sharing system rather than a legal download service like iTunes.

"The volume of music files purchased legally is swamped by the sheer volume of files being traded illegally, whether on P2P or burned CDs sourced from borrowed files," says Russ Crupnick, vice president and entertainment industry analyst for NPD Group, in his report.

P2P site Limewire was the leader in downloads at a 62% share, with the average Limewire user downloading 309 music files in 2006, NPD Group reports. Torrent services like upstart BitTorrent are gaining in popularity through hybrid models which both offer file-sharing and content for sale.

Apple Inc.'s iTunes global stores and other a la carte digital download services remain dominant, although they have gained competition from subscription services, mobile mastertones and advertising-supported models and video-licensing deals on sites like MySpace and YouTube.

NPD Group reports that iTunes has a 70% share of U.S. households using a legal service, but the average number of files purchased by iTunes users fell 11% since 2005. Other a la carte digital download services also saw their download numbers erode, with declines reported by Napster and Wal-Mart, although Yahoo's digital music downloads were steady.

Another factor to consider in the proliferation of legal music is mobile music. This year could be a banner one for mobile music with handset makers such as Nokia and Sony Ericsson developing their music phones, as well as the impending release of the Apple iPhone.

But despite the growth of legal distribution channels, reigning in piracy remains a top concern.

"While the industry's anti-piracy initiatives appear to be having some positive effect on this trend, further efforts remain necessary to stem the loss of music sales to P2P," says Crupnick.

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