Pieter on Fri, 23 Jul 2004 11:29:16 +0200 (CEST)

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<nettime> "File sharing has no impact on sales of CDs"

[via http://info.interactivist.net/article.pl?sid=04/07/22/074221 ]


Listen to the flip side

New research suggesting that file sharing has no impact upon sales of
CDs has, not surprisingly, angered the music industry. Suw Charman

Thursday July 22, 2004
The Guardian

Record year: during the past nine months, CD sales in America have
increased by 7%, despite continued growth in file sharing. Photo: Frank

As far as the music industry is concerned, the message is clear: file
sharing is killing it. "Research clearly illustrates that the illegal use
of music on the internet is damaging the entire UK music industry," said
Peter Jamieson, the chairman of the BPI (British Phonographic Industry).
Even Apple's chief executive, Steve Jobs, agrees. "iTunes really competes
with piracy, not the other services," he said at the iTunes Music Store
Europe launch last month. "Piracy is the big enemy - the market has shrunk
in France and Germany and seen zero growth in the UK." Yet despite the
industry's belief that file sharing is anathema to record sales, a recent
study has shown that it may not be so clear cut. "Downloads have an effect
on sales that is statistically indistinguishable from zero," the
controversial report claims, even going so far as to suggest that for
popular albums, "the impact of file sharing on sales is likely to be

The study, by Felix Oberholzer-Gee, Associate Professor in the strategy
unit at Harvard Business School, and Koleman Strumpf, Associate Professor
in the economics department at the University of North Carolina, analyses
sales and download data, and its conclusions contradict the established
music industry line.

During the last quarter of 2002, the pair gathered data from two
peer-to-peer file sharing servers on the OpenNap network and matched
individual downloads to the weekly sales figures of 680 chart albums.

"Our hypothesis was that if downloads are killing music, then albums that
are downloaded more intensively should sell less," says Strumpf. But,
after adjusting for the effects of popularity, they discovered that file
sharing has "no statistically significant effect" on sales.

 An economist with a love of music, Strumpf has been interested in file
sharing since the Napster trial in 2000, but was not impressed by the
evidence presented in court.

"I read through the studies that were used during the trial, and they were
really horrible," he says. Many of the surveys concluded, incorrectly
according to Strumpf, that people who download more buy less.

"The fact that there's a correlation does not imply that downloading is
the root cause of these people buying less. File sharing is done primarily
by teenagers and college kids because they have a lot of time on their
hands but they don't have a lot of money. If we got rid of file sharing
tomorrow, it doesn't necessarily mean these kids would be buying any more

Another problem is that asking someone about their illegal activities,
particularly in the US where they risk prosecution, is unlikely to result
in honest or accurate answers.

But Oberholzer-Gee and Strumpf are not without critics. "We consider it a
very flawed study," says Matt Phillips, a BPI spokesperson. Both the BPI
and the International Federation for the Phonographic Industries (IFPI)
have criticised the study for including the Christmas period when people
are buying CDs as gifts.

"It's very straightforward to address these kinds of criticisms," says
Strumpf. "We got rid of the Christmas season and just looked at the first
half of our data. We still find the same effect."

So, if downloading hasn't caused the slump in sales, what has? There are
several factors that could be involved, but the easiest explanation is the
popularity of DVDs.

"Over the period 1999 to 2003, DVD prices fell by 25% and the price of
players fell in the US from over $1,000 to almost nothing," says Strumpf.
"At the same time, CD prices went up by 10%. Combined DVD and VHS tape
sales went up by 500m, while CD sales fell by 200m, so a possible
explanation is that people were spending on DVDs instead of CDs."

It is clear that more work needs to be done before the market effect of
downloading is fully understood, but Strumpf was unsure whether they would
be able to conduct further work.

"The problem is getting hold of sales figures. Getting data on file
sharing is hard, but it's possible. However, I imagine it's going to be
difficult for us to get sales data in the future because of the views of
the record industry towards us."

Prior to Oberholzer-Gee and Strumpf's report, there were no empirical
studies based on actual file sharing behaviour, and the music industries
in the US and the UK have based their policies on, at best, incomplete
research. At worst, the surveys and analyses they quote are misleading and

Yet still the RIAA has sued its customers - an action Strumpf calls "one
of the stupidest things in the world to do". The BPI has stated it is
"prepared to go that route if forced".

Some even question whether the fall in sales the RIAA quotes is real, or a
product of a creative redefinition of the word "sale". Even if it is real,
there is one final fly in the ointment that can't easily be explained
away: during the past nine months, CD sales in America have increased by
7%, despite continued growth in file sharing.

As Strumpf says: "If file sharing is killing record sales, why are records
starting to sell better?"

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