Downloading doesn’t hurt the music biz…

For the record, the Journal of Political Economy is exceedingly legit. It’s one of the oldest peer-reviewed, scholarly journals out there, and has extremely high editorial standards. You may not agree with the way the study is done, but their findings are generally pretty hard to impugn.

Downloads are not the primary reason for the decline in music sales

Downloading is not the primary reason for the decline in music sales, argues a new study by researchers from Harvard University and the University of Kansas. The study, which appears in the current issue of the Journal of Political Economy, is the first to examine the correlation between the rise in file sharing and the decline in CD sales using large amounts of actual data from the log files of working servers. The researchers captured information on more than 1.75 million music downloads from file-sharing individuals who were unaware that their actions were being recorded.

“We match an extensive sample of downloads to U.S. sales for a large number of albums,” write Felix Oberholzer-Gee (Harvard University) and Koleman Strumpf (University of Kansas). “While file sharers downloaded billions of files in 2002, the consequences for the industry amounted to no more than 0.7% of sales.”

Oberholzer-Gee and Strumpf compared songs successfully transferred by U.S. users with songs on albums that had appeared on Nielsen Soundscan charts across eleven genres – including both Top Current and Catalogue Albums – during the study period. They matched 47,709 downloads in the server log files to the list of songs to compile their sample.

“Although our sample is representative of all commercially relevant music in the second half of 2002, it is striking to see that more than 60% of the songs in our sample are never downloaded,” the researchers write.

As expected, the resultant sample of matched songs included tracks from bestselling albums, but it also included many albums with lower sales figures, including two albums that sold fewer than 100 copies during the study period (September – December 2002). Songs from the Top Current chart were the most frequently downloaded, representing 48% of all file transfers.

Since the popularity of an album drives both file sharing and sales, Oberholzer-Gee and Strumpf then sought to determine if an increase in availability of a file for downloading negatively affected sales. They developed an empirical analysis that took advantage of the fact that German users provide about one out of every six files downloaded in the U.S., with the supply of files increasing during weeks when many German students are on vacation from school. Accounting for factors such as band tours in Germany, time zone differences, or misspelled song titles, the researchers found that an increase in the number of files available to download had surprisingly little effect on U.S. music sales.

“Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period,” write the authors.

Thus, the recording industry’s claim that file sharing causes significant “market harm” is an overstatement and has little effect on the incentives to produce music. Even with the most generous estimate derived from the data, file-sharing cannot possibly be the main driver behind the recent decline in CD shipments, which fell by 25% between 2000 and 2005.

Instead, the authors cite changing distribution models or an increase in spending on DVDs, video games, and cell phones as possible culprits that may more accurately explain the decline in music sales.

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