The New York-based market information company said the number of consumers paying for downloads fell to nearly one million users per month in May, June and July from a peak of 1.3 million in April 2004.
NPD said the downturn coincides with the end of promotions and trial price incentives offered by several services.
From December 2003 to July 2004, iTunes remained the dominant destination, commanding nearly 70% of music files downloaded legally, while Napster`s share for that period was 11%.
MusicMatch, RealNetworks and Wal-Mart Stores each reached a 6% share.
Napster is a unit of Roxio, while MusicMatch recently agreed to be acquired by Yahoo.
"Our research suggests that at this stage of the business it is not so much about building share as it is about creating demand for paid downloads universally," said Russ Crupnick, VP of the NPD Group.
"We have seen that promotion works, but its had a short-term effect so far, which is typical for traditional consumer goods. The trick is in phasing promotions, so that there is a cumulative positive effect on the target market," he said.
Meanwhile, NPD cited no slowdown in the number of households with a member using peer-to-peer (P2P) sites to download music for free, with 6.4 million tallied in July 2004, compared with 5.1 million in August 2003. The numbers rise and fall incrementally month to month.
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