The music industry is in a state of flux as digital music services take-off but recent US Research shows more is possible in the online music space.

The NPD Group gathered data from a 40,000-strong sample group and 5,000 user interviews for its findings. The fast-growing digital music sales sector is now worth 6 per cent of all music sales, partially offsetting the continued decline in CD sales (down 5 per cent in the second quarter of 2005, NPD claims). The analysts claim: "69 per cent of Internet-using households have at least one digital music file on their home PC hard drive".

Legal downloads gaining traction

On average, each US computer user now has 340 music files on their computer, up 24 per cent, year on year. These include ripped tracks; tracks ripped from friend's CDs; legal downloads and pirated tracks. But the mix is changing.

Russ Crupnick, president of NPD's Music and Movies division said: "We're seeing a slow shift from illegal P2P downloading to use of legal digital music services."

He explained that while most digital tracks once came from P2P services, today's music collections show fewer pirated tracks and a "rising incidence" of legal downloads. 17 per cent of music buyers acquired tracks from legal services in the first half of the year, NPD said - up 11 per cent on 2004.

Huge potential for growth

NPD estimates there are 70 million households who regularly use the internet and 60 per cent of these could become customers for legal digital services. Crupnick discussed, "a tremendous amount of untapped growth in the digital market for both music distributors and retailers."

"There are several basic prescriptions for continuing healthy growth in legal digital services," Crupnick concluded.

"They include: reaching out to broader demographic segments; continuing to pressure illegal P2P services, while educating consumers to the benefit of legal alternatives; and providing a compelling price-versus-value proposition to the consumer."