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Given this evidence, it seems like a clear victory for the music industry in online music. What’s more, such a proposition would have been unthinkable six years ago, when Napster burst onto the scene, introducing the idea of free music to millions of online music fans – and seemingly sounding the death knell for traditional music labels.

But the industry’s legal efforts to thwart peer-to-peer file sharing are clearly having an effect on the companies that offer such software. And they’re affecting file-sharing traffic as well. According to Eric Garland, CEO of BigChampagne, a company that monitors peer-to-peer traffic, overall traffic growth on these services is slowing. “The growth curve is pretty glacial at this point,” he says.

In fact, the average number of simultaneous peer-to-peer users for September 2005 was 9.3 million, down from 9.6 million in August.

Still, Garland believes that while the companies offering this software may disappear or go legit, peer-to-peer software won’t go away – and it may in fact become more user-friendly. P2P companies made revenue via the ads they bundled and sold with the software, Garland points out. If the companies go out of business, other ad-free variants of P2P software may continue to grow in popularity.

“Once you take the profit incentive out of the software, you remove all the things like spyware and adware that companies have inserted into the products,” Garland says.

So while this may be a moment of victory for the music industry over the software geeks, it may also be a transitory one. Already, fissures are showing between the music industry and Apple, as evidenced by the recent sniping in the press between Apple’s Steve Jobs and Edgar Bronfman, CEO of Warner Music, over iTunes pricing plans.

Bronfman is looking for more money, or at least the right to control the pricing, while Jobs is adamant about keeping the price of a song on iTunes at 99 cents. And a world in which consumers are able to select ten individual songs in 99-cent increments instead of buying a $17 album on CD may not be a bright one for the music industry.

 ”If this is a victory, it’s a Pyrrhic victory,” says Jim Griffin, CEO of Cherry Lane Digital, a consulting business that links entertainment and technology. “It’s a victory in an arena that’s very different than the music business as we know it. It’s a victory for granularity, and granularity isn’t really a victory for many businesses.”

At this point, however, the music industry will likely take victories wherever it can find them.

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