Music Sites Soar in Napster’s Wake

Although court rulings may eventually seal the fate of popular music-swapping services, advertising spending at online music sites spiked significantly in the weeks following a federal judge’s landmark shutdown order against Napster, according to a study released Thursday by Media Metrix traffic researcher AdRelevance.

Prior to the ruling, advertisers spent about $2 million (US$) on music and streaming media sites, but that figure surged to over $5 million, the firm reported. Researchers attribute this sudden infusion of advertising revenue to a jump in user traffic, as music fans scrambled to download free songs before the sites were shut down for good.

Music Sites in the Limelight

While the July 26th injunction affected only Napster, the ruling put other Internet music sites in the limelight as well, sparking an increase in the number of visitors to other similar peer-to-peer sites.

In the week after the Napster ruling, user traffic to Net music sites increased by 22 percent, the study said, demonstrating that major news developments have the potential to drive people to certain sites in droves.

This finding is bolstered by other statistics from Media Metrix. In the wake of massive publicity over the court’s order for Napster to shut itself down, the file-sharing site hosted nearly 4.9 million unique visitors and registered as one of the Web’s 50 most visited sites for the first time. Advertisers, lured by the high numbers, were only too eager to jump on the coattails of the controversy.

Among those sites that experienced the most dramatic gains in advertising revenue were Live365, Sonicnet.com and AudioFind, which saw a 95 percent increase in ad dollars.

Advertisers Go Shopping

Regular advertisers such as MSN and Nullsoft increased their marketing efforts on these types of sites by a combined 100 percent in the weeks following the Napster ruling.

However, spending by incumbent companies tells only half the story, say AdRelevence researchers. New advertisers such as State Farm Insurance, Bonzi Software, Allstate, Network Solutions, X10 and Citicorp combined to add over 3 million dollars to music download and streaming media coffers.

In the six weeks after the Napster ruling, five companies spent over $1 million in advertising on Internet music sites. By contrast, only two companies met that mark in the six weeks leading up to the Napster ruling.

This initial revenue rush was relatively short-lived; both users and advertisers pulled back after a U.S. appellate court temporarily granted Napster a reprieve, allowing it to remain online until its appeal is heard.

Fueling the Controversy

The Recording Industry Association of America (RIAA) has been engaged in the ongoing copyright infringement lawsuit against Napster, arguing that the Web site cuts into recording industry earnings. In its complaint, the RIAA cited a report released in May by Soundscan that showed a sharp drop in CD sales near college campuses, where Napster use has traditionally been heaviest.

The report, however, was countered by research from Jupiter Communications (now Jupiter Research) which found that Napster usage is one of the strongest determinants of increased music buying.

A separate recent study may add more fuel to the controversy. According to Forrester Research, the forecasted increases in illegal file-sharing of songs will cost the record industry $3.1 billion in potential sales by 2005.