A new report from Internet research firm Jupiter MMXI said applications like Kazaa, Morpheus and Audiogalaxy will force legal sites to remain niche until they feature better content for consumers.
Jupiter has urged the record industry in Europe to "crack down hard" on illegal players, whilst at the same time getting serious about licensing content. "Otherwise paid-for music services in Europe will never get off the ground," warned Jupiter analyst Mark Mulligan.
Legal download sites like MP3.com, Peoplesound.com and Vitaminic.com are continuing to lose ground, as evidenced by research carried out between January and March. In January more than 10.7 million unique visitors entered grey market peer-to-peer sites compared with 2.5 million unique visitors to legal operators. By March, patrons to the peer-to-peer players increased to 11.3 million, whilst visitors to legal operators fell to 2 million unique visitors.
The battle for the hearts (and ears) of the growing music downloading community has been one of a virtual ambush for the long stagnant global recording business, and many believe that the onslaught of players like Napster provided a long-awaited shake-up.
The battle has reached epic proportions over the past year as the file-swapping craze graduated from music to include the swapping of copyrighted games, videos and entire movies. While the US recording industry savoured its legal victory over Napster, the company that started it all has been hobbled severely and early this month laid off 30 percent of its staff and postponed the launch of a new secure service. However, the sons and daughters of Napster are still at large and are hurting the music industry.
According to Jupiter, the European recording industry must act now to curb the illegal free downloading of music and license their content to paid-for on-line music services.
The music industry's attempts to regain control of this market through the courts, as seen with Napster, have not only failed to check the growth of file sharing, but have also proved unpopular with consumers. In addition to tackling piracy, Jupiter advises, the record industry will need to offer compelling alternative options to the grey market that are worth paying for.
"Paid services will remain niche until they have comprehensive content and grey market alternatives become less appealing to consumers," Mulligan said.
The record industry, Jupiter says, is faced with a dilemma. It doesn't want to alienate future customers by targeting individuals to close down peer-to-peer networks. More than 52 percent of peer-to-peer users are under 25 years of age. While they are not representative of the older generation of higher spending consumers who are more key to the record industry, they are representative of the new generation of music buyers. They are more likely to use download services on-line than buy entire albums in record stores.
Jupiter is urging the industry to outclass the peer-to-peer players by offering superior services such as better quality sound, virus-free files, exclusive releases from artists and increased security compared to those that are available free right now.
"Europe's legitimate on-line music market is being left in the starting blocks by the unchecked growth of illegal file sharing," Mulligan said. "The record industry needs to crack down hard and fast on the software companies behind file sharing networks and at the same time get serious about licensing content so that legitimate services can offer compelling alternatives. If they fail to do this, the free music mindset will become permanently embedded in the new generation of music listeners and paid-for services in Europe will never get off the ground."