Music. Too late,
Internet users have become used to downloading
it for free!

Online brokerage:
3,74 million Europeans bought and
sold shares online in 2000

A study conducted by the Consumer Electronics Association just confirmed a heavy trend in the way people use the Internet: 89% of American surfers downloaded multimedia content in 2000.

For a long time, contrarily to emailing and surfing, downloading music has been considered as an activity only "professionals" used to practise, and the latter category did not represent more than a minority in the online population. But the figure mentioned above proves that reality is quite different and such behaviour is expected to have huge consequences.

First of all, as a result of such massive phenomenon, Internet users tend to apprehend the software or files they download in a completely different way.

The evidence is that most of them are no longer willing to pay a fee to get those files: 60% are not ready to pay to download music from the Internet.

What is more, such tendency tends to accelerate since over 50% no longer accept to pay to download video games and 48% refuse to pay to download movies of videos. When we know that 38% US Internet users download music from the Internet, it becomes easier to understand how dramatically the Napster episode modified the way surfers think.

I think the Napster phenomenon contributed to establish a specific state of mind that record shops will find difficult to suppress.

Indeed, among the 40% surfers who do not challenge the idea of a fee to allow them to download music, 17% do not feel involved in the matter, 15% do not have any opinion and only… 7% are in favour of such idea.

The challenge for record shops in the coming months will be the following: how could they turn the trend upside down as Internet users have become used to downloading music for free and wish to keep on doing so?

Indeed, I am convinced that trying to close down all these services (that make it possible to download digital matter for free) through legal constraints would only represent a partial answer. Napster already counts too many followers (Gnutella, AudioGalaxy, etc…) and it would prove too difficult to supervise them all (no central entity) to hope and solve this problem by killing competition.

A first solution would be to let things as they are: the survey by CEA proves that 20% of the Internet users who download music from the Internet also buy CDs in their everyday life, either because the music they download give them the opportunity to discover new artists, either because they wish to own the "real" CD (the object).

The dialectic between these two supports is not new: on the one hand, we have what is digital and free, and on the other hand, we have the real object that needs paying.

This dialectic already exists in the press industry: on the one hand, we have the web sites that favour short but up-to-date news and on the other hand, we have the paper version that allows readers to take their time and read more comfortably.

If record shops decided to let this evolution take place, they would loose a great part of their turnover as CDs would no longer be the sole music support: this would mean a diminution of their market share, not to mention the fact that they might be confined, in the medium term, to the music enthusiasts' niche.

The other solution would consist in offering Internet users new services with great added value in relation with the sole sale of music files, such as advertisement for the singer's next concerts, merchandising, etc…

In such logic, music would merely represent an "excuse" to sell other types of services.

As a result, record shops would see their business models totally disrupted; their traditional source of income (sale of CDs) would dry up and make way for new incomes such as ticketing or advertising on downloading sites.

But are major record companies ready to overcome such a big obstacle?

The European market for online brokerage grew 13% in the fourth quarter of 2000 to 3.74 million accounts.

This happens to be a remarkable growth when you know that the European market for online brokerage did not represent more than 1,36 million accounts in 1999.

But we can see major differences between the different European countries.

Germany arrives first as 30% of German shareholders have online accounts (up from 16% at end 1999).

And yet, national growth rates for the other European countries also appear rather impressive:

• Online broking accounts would have almost sextupled in Italy, according to JP Morgan's report, from 40,000 accounts at end 1999.
  
  
• As for France, its accounts would have tripled, from 140,000 online accounts at end 1999.

But online accounts are not the only thing that matters, its corresponding market shares also play an important part.

Once again, Germany arrives first, as it represents 50% of the European online broking market, then come Sweden and France with 11% each, and then only we have the UK (7%), Italy (6%) and Spain (7%).