Internet sales of prerecorded music, such as CDs and cassette tapes, reached $545 million through the third quarter, well behind last year's total of $730 million for the same period, according to the study conducted by research firm comScore Networks.
The study found former Napster users flocked to alternative file-sharing networks such as Kazaa and Morpheus after Napster went offline in the summer of 2001. Morpheus' user base grew from fewer than one million in June of that year to 7.2 million by March 2002, comScore said.
Consumers increasingly are seeking the instant gratification of free downloads, and the ability to burn those downloads to blank CDs offers even more personalization and choice, said Phil Leigh, an analyst for Raymond James & Associates.
"The primary message of the CD burner is the consumer doesn't want to be straightjacketed into buying a prepackaged CD," Leigh said. "I think what we're seeing is not only the death of the physical form factor, but the death of the prepackaged concept."
There are legitimate ways to buy downloads online, such as Listen.com's Rhapsody service, as well as MusicNet and pressplay, two joint ventures launched by the major recording companies to counter illegal song-sharing.
But those services have yet to release any figures on how many people have actually signed up, and it is hard to gauge their popularity in the face of free downloads from Morpheus and Gnutella network programs.
The comScore study only considered online purchases of recorded media such as CDs and tapes and did not look at paid music downloads.
In September, the chief executive of the Recording Industry Association of America, Hilary Rosen, testified at a congressional hearing on music piracy and peer-to-peer networks, saying public education about the illegality of unauthorized file-sharing was of the utmost importance.
"I wish I could tell you that there is a silver bullet that could resolve this very serious problem," Rosen said. "There is not."