p2pnet - rss feed: Online sales and piracy
By Joe McGuire (aka tinfoil)
Since the latest crop of online music services have been introduced, consumers have become instantly enamored with them as evidenced by Apple selling more than one million songs in the week following its launch. Will the services from Apple, Roxio and others put a significant dent in digital piracy? Will the services make up for those lost sales?
According to this Economist.com article, online music sales will grow to 20 times their current stature to account for roughly $1.8 billion. In that same year, forecasters are predicting a $4.7 billion loss due to file-sharing. According to these figures, even with the new online services becoming increasingly popular, file-sharing will deliver a heavy blow to the record industry’s bottom line.
All is not gloom and doom for the industry though. Of the $1.8 billion in revenue generated from the online services, we estimate that well over 50% of that is from former P2P file-sharers and $900 million isn’t chump change.
There’s certainly no one thing that will save the recording industry. Selling music online is a giant leap and shows that the industry is finally willing to listen to their customers, or at least it shows that the industry is looking at its pocketbook, getting alarmed and giving in to customer pressure. Universal’s recent price-cut is another giant step. Given that singles on iTunes Music Service are outselling full albums by a margin of 12:1, it would stand to reason that people are not willing to pay full price for recent releases, opting to pick and choose, only buy what they like and leave the filler out.
One must also consider the expected $4.7 billion loss due to piracy. How is this number obtained? We suspect that fully one third, if not more, of the sales lost to piracy would not have been sales in the first place. These sales are lost when the consumer downloads the album, decides it isn’t worth paying for and deletes everything except the one or two songs they actually like. This is a lost sale and shouldn’t be considered a loss due to piracy. One must also consider the consumer who’s downloading a rare album that’s unavailable to them, be it out of print or an expensive import. These lost sales shouldn’t be attributed to piracy as there would have been no sale anyhow. We expect roughly 10% of file-sharers are in this group. Please note that these numbers may very well be overly cautious.
Taking into account the above considerations, the revenue lost to piracy becomes roughly $2.7 billion. Suddenly online music sales are looking all that much better and it will only continue to grow.
Yes, online music sales, coupled with lower priced CDs, will eventually overtake digital piracy, but nothing will make it go away, not lawsuits, not education, nothing.
