CD SALES CONTINUE TO SLIDE INDUSTRY GROUP BLAMES PIRACY BOTH ON, OFF NET.

Byline: Greg Hernandez Staff Writer

The music industry, beset by slumping record sales, saw a further decline in business during the first half of 2002, according to a report released Monday by the Recording Industry Association of America.

The report showed a 7 percent drop in compact-disc shipments from January through June - on top of 2001's overall 5.3 percent drop. The declining sales figures were compiled as part of the association's midyear snapshot, which included a comprehensive survey of public music practices.

The survey, conducted by Peter D. Hart Research Associates, was based on the responses of 860 Internet-connected music consumers ages 12 to 54. By a margin of more than 2-1, consumers who say they are downloading more also say they are purchasing less, according to the survey.

Officials in the Recording Industry Association of America, the trade group that represents the U.S. recording industry, blamed both online and physical music piracy for the drop in CD shipments. A major sign, they said, is the 69.9 percent increase in counterfeit disc seizures in the first half of the year by law-enforcement authorities.

While acknowledging that an overall drop in consumer spending is partly to blame, they said the findings of the new study counter the theory that downloading music off of the Internet actually helps the industry.

``There are numerous red flags and warning bells that illustrate conclusively the harmful impact of illegal downloading on today's music industry.'' said Cary Sherman, president of the industry association.

Among the findings in the survey:

--Sixty-three percent of Internet-connected music consumers surveyed said they have acquired at least one burned CD in the past year. Of those, the proportion who say they have acquired 11 or more burned CDs has risen from 10 percent to 24 percent in the past year.

--Thirty-five percent of young Internet-connected music buyers said the first thing they will do after hearing a song they like by an unfamiliar artist is download the song for free from a file-sharing service. In contrast, a mere 10 percent said the first thing they will do in that situation is buy the album.

--Total U.S. music shipments dropped 10.1 percent from 442.8 million units in the first half of 2001 to 398.1 million units in the first half of 2002. In dollar value, this represents a 6.7 percent decrease - from $5.93 billion in the first half of 2001 to $5.53 billion in the first half of 2002.

--The number of titles selling more than 1 million units has dropped sharply since last year. At midyear 2001, 37 titles had sold more than 1 million units. At midyear 2002, only 20 titles had sold more than one million units.

--Among people who said their downloading from file-sharing services had increased over the past six months, 41 percent reported purchasing less music now than six months earlier, while only 19 percent said they were purchasing more music.

Other industry experts suggest that factors ranging from radio consolidation to a distaste for current releases may contribute, in addition to piracy, to the sales slide.

``Certainly there is a nod to the piracy and heavy pass-around rate of material,'' said Harvey Kubernik, a record producer and music journalist. ``But there are also fewer original radio stations or mom-and-pop situations, and you got into restrictive radio-play lists. This happened when the conglomerates entered the game, and you have (fewer peopled) governing and dictating song rotation and content.''

Gary Bongiovanni, editor-in-chief of Pollstar, an industry trade magazine, said that many music-loving baby boomers with expansive album collections have finished replacing their beloved records with CDs.

``In the early days of CDs, a lot of those sales were catalog sales, and that distorted some of the numbers,'' Bongiovanni said. ``You reach a point where you have replaced all of your old Beatles records and all of the albums that mean something to you.''

The industry association's midyear shipments numbers are compiled quarterly by the accounting firm of PricewaterhouseCoopers LLP and represent direct data from companies that distribute approximately 90 percent of the prerecorded music in the United States.