NPD Debate Continues; Pandora’s Westergren Jumps In

NPD Group is hardly a lightning rod for controversy.

But research recently presented by the group is stirring a considerable amount of response.  First, Spotify jumped all over a finding that on-demand services tend to decrease paid downloads, itself a rather logical takeaway.  But Pandora founder Tim Westergren is also taking issue with some comments made by NPD analyst Russ Crupnick, specifically those tied to P2P substitutes and behavioral patterns.

As part of the presentation, delivered at the Digital Music Forum in New York, Crupnick noted that P2P sharing is on the decline, though music fans are substituting through a number of different options.  “We’ve seen a big drop in the number of people who are downloading through peer-to-peer,” Crupnick said, while pointing to culprits like viruses and legal concerns.  “Increasingly, there are alternatives, some of those alternatives come in the form of MySpace and Pandora, but some of those come in the form of alternative technology,” a shift that includes the swapping of huge hard drives.  “Over a third of the hard drives are 750GB or more,” Crupnick noted.

Crupnick also identified a younger, more “activist” demographic, a group more prone to simply listen and not purchase.  “They’re a little younger, they’re 9 percent of people but 23 percent of revenue,” the analyst shared.  “Oftentimes when they hear something, especially for a new artist, instead of going and buying it, they’ll just go back to Pandora or MySpace and keep listening to it,” Crupnick continued.

The question is whether labels are happy with that migration path, and the answer is that the sentiment is somewhat mixed.  Getting users off of a totally unlicensed and largely uncontrollable platform is good news for rights owners, but the licensed versions – including MySpace Music and Pandora as Crupnick notes – are not mailing the moneybags labels want.  “For some people, sometimes more listening just means more listening,” the analyst added.

Still, distinguishing between the categories is critical, especially as the space matures.  Westergren disliked getting lumped into a broader category of substitutes, and the way those substitutes were framed at points by NPD.  “Free on-demand is a radically different thing from free online radio,” Westergren emailed Digital Music News on Friday.  “Lumping them together as substitutional free alternatives is a real miss.”

In fairness, Crupnick also made a distinction between the different behavioral tendencies that surround gratis on-demand and streaming radio alternatives, and Westergren is pushing to bring those differences out.  “The more time that I spend with free online radio – something like Pandora – it actually tends to have a discovery effect,” Crupnick shared, while pointing to a survey result showing a 41 percent increased likelihood to purchase paid downloads.  “It is having the discovery effect that we want, and I think part of the reason is that I can’t necessarily pick-and-choose what I want to listen to.”

The rap on MySpace Music (and by default, Spotify) is different.  “Contrast that to on-demand music… the more that I do it, there is a cannibalization effect on paid digital downloads,” particularly a 13 percent drop according to Crupnick.

Those numbers are survey-based, though Westergren is bringing more data to the table.  “We sell about $1MM/month directly through Pandora (ie iTunes/Amazon),” Westergren shared.  “And another survey tells us that’s about 30% of the actual number – ie, if you include offline buying.  So it’s something like $35MM incremental purchases annually, directly from Pandora.”

Report by publisher Paul Resnikoff in New York.