Why did recording companies lose revenue when one purchased song file was shared with many people?

Recording companies experienced significant revenue losses because the widespread adoption of MP3 technology and peer-to-peer file-sharing networks allowed individuals to create and distribute perfect digital copies of copyrighted music without purchasing the original media.12

During the 1990s, compact discs were the primary source of industry revenue. When users began sharing files via services like Napster, they bypassed the traditional retail model. The Recording Industry Association of America argued that while consumers had the right to listen to music they purchased, they did not have the right to facilitate the creation of thousands of unauthorized copies for others.23

This shift fundamentally reconstructed the relationship between producers and consumers, leading to a sharp decline in physical album sales—dropping from nearly 800 million in 2000 to under 150 million by 2014—and causing total industry revenue to fall by more than half during that period.23