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NPD: Illegal Downloads Outpacing Legal Downloads

Port Washington, N.Y. — Legal music downloads are gaining in popularity, yet they were outnumbered by their illegal counterparts by a 10:1 margin in 2006, an NPD Group survey of consumers found.

The number of households downloading legally almost caught up to the number of homes that download illegally via peer-to-peer (P2P) file-sharing networks, NPD found, yet the number of songs downloaded legally grew to only 500 million in 2006, up 56 percent, compared with the 5 billion songs downloaded, up 47 percent, via a P2P network, the company said.

All told, the number of households that legally downloaded music grew 65 percent to 12.6 million in 2006 following a 147 percent increase in 2005 to 327 million. The 2006 figures were up almost threefold from 2004. In contrast, the number of households downloading illegally grew by only 8 percent in 2006 to 15 million, said NPD.

The number of pay-to-download homes gained significantly in only one year, having been outnumbered 2:1 in 2005 by P2P-using households, NPD noted.

Although the number of legal-download households grew at a faster rate than their illegal counterparts, P2P households are downloading more songs on average than ever, while households that download legally are downloading fewer songs on average than before, NPD found.

The average number of files purchased by the common iTunes user fell 11 percent in 2006, NPD said. The number of songs purchased per buyer from Napster and Wal-Mart also declined, but Yahoo’s digital music download sales rates held steady.

Overall, iTunes maintained a 70 percent share of households using a legal service and share of tracks downloaded, NPD said.

“Legal à la carte downloads were the fastest growing digital music category in 2006, and it is likely that the annual number of legal users will surpass P2P users in 2007,” said Russ Crupnick, NPD’s entertainment industry analyst VP. “Unfortunately for the music labels, 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.”

“Paid usage is gaining on P2P. However, P2P users tend to download many more files per user than do those consumers who pay for music downloads,” Crupnick noted.

He also called the slowdown in the growth rate of P2P users “somewhat remarkable given the growth in digital music users overall, the emergence of digital video, and the expanded consumer exposure to broadband.” Despite that, Crupnick noted, “five billion files downloaded illegally clearly affect prospects for both CD sales and sales of digital song tracks online. 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.”

By the end of 2006, there were 47 million “digital music households,” or households with a family member who downloaded, ripped, burned, played or uploaded digital music.

NPD obtained its results from 12,000 online PC users, with results balanced to represent the online population of U.S. Internet-enabled PC households.