Napster Use in Canada to Suffer Dramatically

TORONTO, May 3rd, 2001 - Downloading MP3 files from the Internet is growing in popularity among Canadian Internet users and shows no sign of easing up. But Napster's eventual move to a fee-based revenue model will have a dramatic effect on Canadians' use of the company's Internet service as two-thirds of Canadian users say they will refuse to pay, new research from Ipsos-Reid shows. The vast majority of Canadian Napster users say they will continue to find ways to download or swap music for free, making Canada one of the heaviest - and staunchest -- users of music downloading technology in the world.

The Ipsos-Reid study shows that 38% of Canadian adults with an Internet connection (or 26% of the Canadian adult population) have ever downloaded an MP3 file, up from 32% at this time last year. Not surprisingly, downloading MP3 files is dramatically more popular among younger Internet enabled Canadians (59% of those 18 to 34) than it is for those 35 to 54 (27%) and for those who are 55 and older (9%). Results also indicate that the number of MP3 users could grow by up to 30% in the next year.

However, Napster's pay-for-use structure, which is expected to be implemented later this year, is going to have a dramatic impact on the practice of downloading MP3 files. Only 34% of the estimated 5.4 million Canadian Napster users say that they will continue to use the service once they have to pay for it. Another telltale sign of more troubles ahead for Napster is that 83% of users say they will try to find another free peer-to-peer downloading service, such as Gnutella, once Napster starts to charge.

"Downloading MP3 files is a popular activity in this country, but Napster's recent struggles show no sign of abating once they implement their pay for use structure," said Chris Ferneyhough, Vice President of Technology Research at Ipsos-Reid. "Napster may be the highest profile service right now, but consumers appear fully prepared to find something else once they can no longer count on Napster as a free music source. Brand loyalty in this category appears to be pretty low. The final chapter of the MP3 revolution is a long way away from being written."

Although 83% of Napster users plan to find another free service once Napster starts to charge customers, only 36% say that they have already used something similar.

To date, the most visible competition to Napster's service was Scour, which was forced into bankruptcy late last year and eventually purchased by CenterSpan Communications. The recording industry does not consider Gnutella to be a major threat.

Among Napster users who say that they will continue to use the service once Napster starts to charge, the largest proportion would prefer to pay on a per downloaded song basis (42%). Although most talk around the revenue model focuses on a monthly subscription model, fewer (33%) would prefer to pay on a monthly basis. One-in-five (21%) would prefer to pay on a yearly basis.

The "Canadian Inter@ctive Reid Report" is the largest, most comprehensive and authoritative source of its kind about quarterly Internet trends in Canada. The results are based on two separate data collection instruments. In the first, 1,000 web users from Ipsos-Reid's Canadian Internet Panel are surveyed online. Panelists are chosen through random telephone surveys conducted on an ongoing basis across Canada. Results are complemented by a further 1,000 interviews via telephone with Canadian adults in order to verify results of the panel, and track issues among non-Internet users. The most recent quarterly results were collected between March 5th, 2001 and March 15th, 2001.

These data are statistically weighted to reflect the population proportions of regular online users by online expertise and regional distribution. Our panelists represent approximately 12.4 million Canadian adult Internet users who are online for one hour a week or more (there are a total of 15.3 million adults who have Internet access).

With a national sample of 1,000 (for each component), one can say with 95% certainty that the overall results are within a maximum of 1773.1 percentage points of what they would have been had the entire population of Canada's regular online users been surveyed. The margin of error will be larger for sub-groupings of the survey population.

Established in 1979, Ipsos-Reid is Canada's leading market research and public opinion company. Its is best known for the Angus Reid Express Poll, the most widely quoted source of public opinion in the country. Founded by Dr. Angus Reid, Ipsos-Reid has conducted extensive market and social research in 80 countries and in 40 languages, and serves clients around the world through more than 300-professionals and 1,000 data collection staff in eleven offices. The company is a member of the Paris-based Ipsos Group, ranked among the top ten research companies in the world.

For more information, contact:

Chris Ferneyhough, Vice President
Technology Research
Ipsos-Reid Toronto
t: 416.324.2283
e: [email protected]

Or

Steve Mossop, Senior Vice President
Technology Research
Ipsos-Reid Vancouver
t: 604.893-1609
e: [email protected]