Will consumers buy the
latest music recordings when they can download them for free from the Internet?
A Harvard Business School associate professor says yes, in a new study that
challenges the wisdom of the recording industry's worldwide campaign to halt
illegal file downloading.
"When we first saw the results, we said, `No,
no, no, no, no. We must be doing something wrong,"' said Felix Oberholzer-Gee,
who prepared the study with Koleman Strumpf of the University of North
Carolina.
But after rechecking the
figures time and again, Oberholzer-Gee and Strumpf found that downloading music
had no impact on sales of compact discs.
The new study also suggests that
the recording industry tactic of suing Americans who make files available for
downloading will have only a limited effect. They found that more than half of
all downloads came from outside the United States.
Germany on
top
Germany was the biggest source of foreign file downloads, at 16
percent of the total, followed by Italy at 11 percent.
The recording
industry seems to have reached the same conclusion. Tuesday the International
Federation of the Phonographic Industry said its members have issued warning
letters, lawsuits and criminal charges against 247 file swappers in Canada,
Germany, Denmark and Italy.
The international campaign is modeled after
one begun last year by the Recording Industry Association of America. Jonathan
Lamy, spokesman for the group, rejected the conclusions of the new
report.
"The overwhelming weight of evidence, analysis and surveys
attests that illegal file sharing has a negative impact on CD sales," Lamy said.
"The Harvard-UNC study is simply one analysis taken during an isolated snapshot
in time, and it is contrary to the volumes of research and analysis by countless
others."
Most studies of music downloading have surveyed people who use
file-swapping services, asking them whether they buy copies of the recordings
they download. But Oberholzer-Gee and Strumpf feared that some people wouldn't
provide honest answers and claim that they bought recordings when they
didn't.
So in the fall of 2002, Oberholzer-Gee and Strumpf got permission
to plug into two "supernode" servers on the file-swapping network called OpenNap
to track the files being downloaded. Over a 17-week period, they watched users
download about 1.75 million files, of which 261,000 were downloaded by
Americans.
Oberholzer-Gee and Strumpf also drew up a list of 680 popular
CDs. They tracked the Nielsen SoundScan charts to measure U.S. sales of these
albums over the 17-week period, comparing this to the number of times people
downloaded songs from the albums.
Oberholzer-Gee and Strumpf figured that
if music downloads were cutting into record sales, there would be a decline in
sales of a CD whenever there was an increase in downloads from that disc. To
their surprise, it didn't work that way. "Downloads have an effect on sales
which is statistically indistinguishable from zero," the study
concluded.
"The Internet is really much more like radio than we thought,"
said Oberholzer-Gee. "If they like what they hear, they go to the store, and
they buy it." Thus, he added, Internet downloading can promote CD sales just as
radio broadcasts do.
Sees swapping benefits
The study was music to
the ears of John Jordan, a media analyst for Cap Gemini Ernst & Young who
has long believed that file swapping can benefit the recording industry.
"Spreading the word about good new music is what every artist hopes for," he
said, adding that many listeners will want to buy a CD once they've heard a
sample. "You still have a very large installed base of people who prefer to buy
it that way, if you give them a fair deal," Jordan said.
But others
remain unconvinced. Josh Bernoff, an analyst at Forrester Research in Cambridge,
stands by his view that file swapping costs the recording industry about $700
million a year in lost revenues. Bernoff said because Oberholzer-Gee and Strumpf
track only the most popular CDs, they miss the larger effect that file-swapping
software such as Kazaa has had on the music market.
If "I am a frequent
user of Kazaa, therefore I know anything I want is available for me to
download," Bernoff said. "Therefore when I go into a record store, I don't buy
as much as I used to."
Material from Globe wire services was used in
this report.
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