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Music Biz in a Funk

The total number of units shipped by the major record labels sank by more than 10 percent in 2001 – a decline the industry blamed in part on the ballooning growth of Internet piracy, but which others claim may also reflect more fundamental troubles in the business.

The five majors, which together represent nearly 90% of all music sold in the U.S., shipped 969 million units last year (net of returns), including CDs, cassettes, LPs and DVD music videos, according to data compiled by the Recording Industry Assn. of America. That’s down from 1.08 billion in 2000.

The downturn was not as pronounced on a dollar-value basis, as more-expensive CD-format shipments continued to account for a larger part of the mix. Music product worth $13.7 billion shipped to stores, down 4.1% from the year before.

The shipment numbers provided by the RIAA are not the same as actual sales at retail, which include the effect of independent-label stock and exclude record club sales. They also diverge because of fluctuations in retailers’ inventories. Retail sales in the U.S. fell nearly 3 percent in 2001, according to data released earlier this year by SoundScan.

The industry said a large part of its woes in 2001 are attributable to the Sept. 11 effect and the dismal economic backdrop, which has pounded consumer goods makers of all stripes. But the RIAA saved the bulk of its ire for cyberpirates, whom they claim are siphoning off the industry’s growth prospects.

“When 23 percent of surveyed music consumers say they are not buying more music because they are downloading or copying their music for free, we cannot ignore the impact on the marketplace,” RIAA president Hilary Rosen said, citing a study commissioned by the trade group.

But the industry has also been broadly criticized for relying on a business model that is fast becoming outdated and for choosing to fight online music fans rather than find an effective way to sell to them.

The record biz’s two main stabs at a legal alternative to the free file-swapping world, Pressplay and MusicNet, went online nearly two years after the rise of Napster, and have taken heat for the restrictions they place on copying and transporting music files.

“They have begun to wake up, but it probably would have helped if they had done that 18 months ago,” said James Glicker, CEO of independent music Netco FullAudio, which has developed its own digital distribution platform. “The technology radically changed the business model, and some of the things they’re facing are very difficult to correct. On the other hand, they could have been a lot more aggressive in providing alternatives.”

One of the most intractable problems for the industry, according to both Glicker and the RIAA, is the proliferation of CD-burning technology.

The industry-sponsored study found that more than half of people who download free music from the Net also copy it onto a burned CD or MP3 player, and that ownership of CD-burning hardware has tripled over the last three years to 40% of music consumers surveyed.

Free music has proliferated on the Net over the past year, as the demise of Napster’s free service has given way to several more efficient and harder-to-stop successors. The RIAA has suits pending against the most popular of these, including Morpheus, Kazaa and Grokster, but it’s unclear as yet how effective their enforcement efforts will be.

By the RIAA’s numbers, CDs continued to grow as a percentage of the total shipment mix, even though the numbers sold declined 6.4 percent overall (2.3 percent in dollar terms). CDs represented 91% of units sent to retailers, compared with 87 percent in 2000.

DVD music video shipments surged along with the larger DVD market as the format continues to be embraced by consumers. Shipments of that format leapt nearly 140% in both unit and dollar terms.

Meanwhile, shipments of LPs held steady at just over 2 million, and music cassettes continued their steady decline into oblivion, with shipments slumping by 40% from the year before.

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