Mon
Feb 12 2007
10:38 pm

P2P effect on legal music sales "not statistically distinguishable from zero."

A new study in the Journal of Political Economy by Felix Oberholzer-Gee and Koleman Strumpf has found that illegal music downloads have had no noticeable effects on the sale of music, contrary to the claims of the recording industry.

Entitled "The Effect of File Sharing on Record Sales: An Empirical Analysis," the study matched an extensive sample of music downloads to American music sales data in order to search for causality between illicit downloading and album sales. Analyzing data from the final four months of 2002, the researchers estimated that P2P affected no more than 0.7% of sales in that timeframe.

This is science-speak for "downloading is not killing the music industry."

Andy Axel's picture

I know. Ain't it a

I know.

Ain't it a bitch?

____________________________

Recursive blogwhore.

tragicallyhip's picture

study flawed?

First let me say that I think the record companies have totally screwed themselves by perpetuating the hit machine. They focus far too much on a small handful of artists that they expect to sell really big, and when one or more of those artists' efforts fails to hit big numbers, they suffer dramatically because of a derth of across-the-board quality music. Conversely, they typically fail to build a broad portfolio of quality music, keep prices artifically high, and generally regard their customers with contempt. The record companies themselves bear a very large share of the burden for the current plight of their industry. They've ignored the long tail, and its coming back to bite them.

All of that said, there is a fundamental flaw in this study. Based on what I can gather, it assumes a binary choice between downloading a file illegally and buying a CD at a retailer. For many younger users, the concept of buying a CD is as foreign as having milk delivered to their front porch. They've been downloading illegal music since they were in sixth grade, and they've never been to a music store.

Also, it appears that a major assumption of this study is that if more copies of a song file are available on the network, it must also be downloaded more to negatively impact CD sales, and since more songs are available during Germany's holiday periods and CD sales in the US don't go down at that time, there must not be a relationship. That's absurd. Just because downloading in the US doesn't go up and CD sales don't go down when Germany is on holiday and therefore active in P2P doesn't even come close to causality. Are Germans and Americans on hoiday at the same time?

Okay, I'm thinking way too much about this. I think the study is fundamentally flawed, and I disagree with its conclusion. I absolutely believe that P2P music sharing has had a negative impact on music sales. But I also believe the record companies have brought on much of this themselves, and they are doing a terrible job of addressing it in a customer-friendly way.

Where are Levitt and Dubner when you need them? Oh wait. Here they are. Sort of. (found via their website)

Andy Axel's picture

CD sales started moving

CD sales started moving south even before P2P. There were a number of reasons for this.

1) Much of the upswing in CD sales in the late 80's was from the technological obsolescence of vinyl & cassette in the first place. I'm trying to recall where I saw this analysis, but it plainly showed that CD's went up in sales as LPs and cassettes were taken off the market. That stands to reason. But the RIAA reported that as "increased sales."

People substituted because they were forced to -- so there was an "apparent" spike in CD sales, but it basically tracked people switching to the new technology. If you back out the substitution factor, sales of new recordings were flat to declining even before P2P.

2) There is an element of price inelasticity in compact disc sales. That is, most people won't pay just any price for a recording. Witness the trade in CDs at most used record stores and online at places like zShops, Django, and eBay. Also, used CD sales are easier to support; the margins for resellers are typically much better than margins on new product.

Want to know what killed Tower? Big inventories of new product, where their click-&-mortar competitors were kicking their ass on margins. Tower was always a boutique model, even when economic conditions changed. When you were the only gig in town, you could charge over MSRP and people would pay it. Paying $18.99 for a new domestic CD was unsupportable long term, even with deep discounts for first month/top 20. (And witnessing that bankruptcy close up, I noticed that people didn't get really moved to buying shit from them until they moved into the 40% discount range. Sounds like about $9.99-$11.99 might be the motivating price point for most consumers, huh?)

3) ...and probably the biggest problem...

The vertical integration and consolidation of the music industry. There is little economy of scale in having a oligopoly in recording and distribution. This has led to the situation where artists who "only" sold 2M copies were dropped from their labels because they were "too expensive." (Who, you ask? Mariah Carey is one.)

Of course, people are dealing with all of this in creative ways. And that's what leads me to believe that the real issue in P2P -- the one issue that scares RIAA shitless -- is that artists will eventually break the oligarchical model and will produce waves of breakout hits which won't rely upon the monolithic infrastructure of Big Music Inc.

I've long maintained that if your guiding interest in "legal" music transactions is taking care of the artist, then you should download direct from them at the same price that you pay to a retailer.

Which leads me to conclude thus: The danger in P2P to RIAA isn't the technology itself, and it's not that people aren't willing to shell out a few bucks for some good material; it's the fact that they don't control it. If they don't control the delivery vehicle, they can't control the artists, which essentially means that they have no product. All those pinstriped marketing reps and silk baseball jacketed A&R folks have nothing if not for the artists, who've worked down on the plantation ere these many years.

It's not about the law. It's about who exercises the power. They'll turn a blind eye to payola, which is every bit as illegal as filesharing (thanks to DMCA), but payola benefits them, so they're not quite so preachy about the law when that subject is broached.

Anyway... long story short... P2P is only a partial picture in the story of declining CD sales, and if this study has merit, it shows that there are other variables to examine.

(At a personal level, it's simple. If they want people to purchase their product, they should (a) charge a reasonable rate for it, and (b) stop sucking so bad at much of the material that they do put out.)

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Recursive blogwhore.

rikki's picture

ssdd

Going back to the days when the recording industry was whining about how homemade cassette tapes were killing their profits, a friend of mine had a sticker on his guitar case that read, "Home fucking is killing the prostitution industry"

Andy Axel's picture

Well said

I need that sticker.

____________________________

Recursive blogwhore.

redmondkr's picture

I had a large personal spike

I had a large personal spike in CD buying when I began replacing favorite LP's with the new medium in the mid eighties. I had a $500 turntable and a $400 cartridge and had been feeding the combination with discs made from somebody's old shower shoes. Tics and pops in quieter passages were getting worse by the day.

Even classical labels such as Deutsche Grammophon weren't much better although they demanded premium prices. I remember obtaining seven copies of Also Sprach Zarathustra on DG before finding one that was relatively noise-free. Once my collection was essentially duplicated on CD's, the spike ended. I suspect that occurred in many other households.

Another annoyance that P2P and later legal downloads ended was the problem of buying a disc with one or two good tracks and crap for filler or the practice of selling an "album" on a CD with a total play time of twenty or so minutes. P2P also made it possible to find out-of-print music that the record companies owned but wouldn't sell.

I still spend a good deal of time transferring the "keepers" from my 700 or so CD's (and a few LP's) to the secondary hard drive. I plan to go to the iTunes store, listen to snips of the Grammy Award winners, and buy some of the keepers.

The Byrds were right. The record companies are just selling plastic ware. When the art started riding on a new carrier, they were lost.

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