The Music Industry's New Internet Problem

Is Streaming Cutting Into Sales?

BUSINESSWEEK.COM's DOUGLAS MACMILLAN has written an article explaining the music business' "new Internet problem."

He writes, five years ago, that NEW YORK-based graphic designer GITAMBA SAILA-NGITA spent around $100 a month buying CDs and digital downloads to fill his iPOD. Now, he spends less than $10 each month on tunes. The reason? He gets almost all of his music from services like IMEEM and LAST.FM, where he can listen to pretty much anything over the Web for free or at minimal cost. "And I absolutely listen to more music than I used to," says the 23-year-old. "I pretty much have music playing all the time. It's because I can access so much of it, however I want."

The music industry has a new Internet problem. A decade ago, the major record labels began to worry about online piracy, in which people illegally swapped music over peer-to-peer networks like NAPSTER and later LIMEWIRE. Partly in response to the piracy threat and partly due to sliding CD sales, music companies began to experiment with licensing their records to new online services.

The idea was that services like IMEEM, LAST.FM and PANDORA would let people listen to music on PCs, mobile devices,and home stereos, while collecting small fees and advertising revenue that the services would share with labels and artists. Music fans would be discouraged from stealing tunes, and the major labels might even get a sales boost as listeners discovered new kinds of music.

But it hasn't worked out that way. Researchers and industry consultants say online music sites are being used by a growing number of listeners as a substitute for purchasing music, rather than serving as a catalyst for more purchases.

Check out the full article here.

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