Teen music spending, P2P use drops

Online radio more popular in 2008, according to study

Teens are buying fewer downloads, using P2P less frequently and listening to more music streams, according to a new report by NPD Group. NPD found that CD purchasing declined by 26% in 2008 while download purchases fell 13%. In contrast, more than half of teens in the survey listened to online radio in 2008 (an increase from 38% in 2007) and downloading or streaming music on social networks rose to 46% from 26%. The share of teens that listened to satellite radio also increased.

Those who see file-sharing as the bane of the music industry's existence will be pleased to know NPD found the quantity of files acquired by teens through P2P networks fell 6% in 2008.

These trends are not out of line with global trends cited in other studies. A recent Ipoque study found similar trends in streaming and P2P usage. Global P2P traffic as a share of all Internet traffic, it found, had decreased in 2008. Similar to the streaming trend noted by NPD, Ipoque found streaming video was taking over P2P use. The Ipoque study, as have other studies, also found that file hosting sites were increasingly popular. Such sites, which allow people to share download links to files uploaded on remote servers, host much copyrighted content but tend to fly under the radar since file-sharing networks capture more of the content industry's attention. It stands to reason that an increase in file-hosting sites would decrease the share of other content sources.

The new NPD report is quite different than the one it issued last year. U.S. consumers acquired 6% more music in 2007 than in the prior year, according to a February 2008 NPD Group report. But because of the imbalance between the value of those formats, consumers spent 10% less money.

Key takeaways

There are a few key takeaways from the NPD study. One is that the numbers should be taken with a perspective of overall trends and in context of the recent economic downturn. Cutbacks in entertainment spending were cited by 24% of teens as the reason for buying fewer downloads. Teen spending on all entertainment, according to NPD, decreased by an amount greater than the drop in digital download spending. The drop in teen spending on CDs - 26% - exceeds the overall drop in unit sales of 14% but is not overly alarming.

Another takeaway is the use of online streaming to sample music. An increase in usage of streaming sites is good news for the fledgling segment. But sampling has its benefits and its drawbacks. A consumer can use free, online streaming as a tool for making better, more well-informed purchases. That leads to a happier consumer. At the same time, time spent sampling reduces time spent listening to purchased music. NPD found that 1% of teens who streamed a song at a social networking site like MySpace would purchase a track at Amazon.com. Furthermore, sampling can also prevent people from making poor purchase decisions.

A final takeaway is an alarming and seemingly incongruous item from the study: 32% of teens who purchased less music in 2008 expressed discontent with the music available for purchase. Given that iTunes and most download stores have millions of songs, and given the wide range of music available, it appears the problem is not the music but the music with which these teens come into contact. In general, any person who says there is no good music being made in the present day has not probably taken the proper steps to seek out the better music. In reality, such effort may not be practical. People are constricted by time and information. When a consumer is disappointed in the quality of music, the effectiveness of marketing and recommendation tools must be questioned. It is ironic that so many teens express distaste for today's music in an era of customized online recommendation engines and technology-facilitated peer recommendations. If technology is the answer for music discovery, NPD's study shows there is much room for improvement.

Read the NPD press release here.