Copyright 2004 CNBC, Inc.  
CNBC News Transcripts
SHOW: Kudlow & Cramer (5:00 PM ET) - CNBC
April 8, 2004 Thursday
LENGTH: 981 words

HEADLINE: Professor Koleman Strumpf of the University of North Carolina discusses a study which indicates downloading music from the Internet doesn't hurt music sales

ANCHORS: JIM CRAMER; LARRY KUDLOW

BODY:
JIM CRAMER, co-host:

Two professors did a study to see if downloading music from the Internet hurts record sales. When they got the results, one said, 'We must be doing something wrong.' Here with those results is Koleman Strumpf, professor of economics at the University of North Carolina.

With all due respect, sir, isn't it a little counterintuitive to think that music downloading hasn't hurt the sales of music?

Professor KOLEMAN STRUMPF (University of North Carolina): Well, yes and no. I mean, yes in the sense of everything you read about in the newspaper says it, but not necessarily. If you think about what goes on with file sharing, I mean, people aren't just downloading things randomly. Some people are looking at what other people are sharing, finding all sorts of new music that they might not have known about before and possibly buying some of that music. Another thing that goes on that you've got to remember, it's very important with file sharing, is file sharing is something that's very attractive to young kids, young kids who don't necessarily have lots of money. So even if they download something, it doesn't mean that in the absence of file sharing that they were going to go ahead and buy that anyway.

LARRY KUDLOW, co-host:

Well, Mr. Strumpf, some in the music industry--I daresay many in the music industry--have challenged your methodology. And if you could just tell us what OpenNap is. Apparently that's a file swapping network you looked at and quantified, OpenNap.

Prof. STRUMPF: Right. OpenNap is basically Napster or a descendent of Napster. And it behaves or looks pretty much to the user just like any other kind of file sharing that you might see, like Kazaa or anything like that. And it turns out to be part of--or it's accessed by people in all sorts of other very popular networks like WinMX, which, while not getting a lot of media attention, is probably the second- or third-largest file sharing community out there.

CRAMER: Well, all right. But Professor Strumpf, let me go in another, more empirical method. I follow a lot of the companies that sell albums, you know, the retailers.

Prof. STRUMPF: Sure.

CRAMER: Ever since file sharing, their sales have been awful, and yet at the same time, it's not like people don't like music less.

Prof. STRUMPF: Sure.

CRAMER: How do you explain their terrible sales?

Prof. STRUMPF: Oh, well, there's lots of explanations. I mean, there's everything from the economy to changing demographics to the fact that people spend money on lots of other things. You can buy DVDs and video games, software, all sorts of stuff that have become a lot better deal, particularly over the same period of time. And one thing I want to stress that's, you know, also not really played up very much is people aren't just downloading music, they're downloading movies, they're downloading games, they're downloading software, and yet these industries haven't suffered the same consequences that you've see with the music business. So it's hard...

KUDLOW: Well, it's...

Prof. STRUMPF: Sorry. Go ahead.

CRAMER: No, it...

KUDLOW: No, it's a very interesting thesis...

CRAMER: Yeah.

KUDLOW: ...and I'm glad you're fighting like heck for it. Did I get this right that there's maybe more evidence in Europe, in Germany, for example, where there's some dishonest downloading going on?

Prof. STRUMPF: More evidence of?

KUDLOW: More evidence that it's actually hurt music sales and that there's a higher volume of illegal downloading?

Prof. STRUMPF: Well, I mean, there may or may not be higher volumes of illegal downloadings. I mean, we found evidence that, yeah, there's a lot of activity in file sharing going on in these other countries, but the most important thing to recognize is downloads themselves don't in and of themselves cause lost sales. It's only if people are downloading and then not buying, and that's what there really isn't a lot of strong evidence about. And I think that's sort of the most important point to stress from our study.

CRAMER: All right. So what is--like Mr. Bronfman said about your study, some of the people who've just bought in big record companies, how are they feeling about your work? Are they ready to put you up for tenure there?

Prof. STRUMPF: No. Well, yeah, we're getting a lot of negative flak from some folks about the study, I mean, not anything about the specifics. I haven't really heard much of anything that's criticized the particular methods that we've used. It's more people very, very displeased with the outcome of what we've been finding.

KUDLOW: Chapel Hill is a nice place to get tenure, Koleman. There's nothing wrong with that.

Prof. STRUMPF: No, no.

KUDLOW: Let me ask you one final question before we let you go.

Prof. STRUMPF: Sure. Sure.

KUDLOW: Is it possible that America's kids are actually more honest than we give them credit for?

Prof. STRUMPF: It's entirely possible. The ones that I've interacted with, you know, online and various other places do have some sense of ethics and particularly loyalty to the artist, and it's entirely possible that these kids are going out there and buying the stuff after they sample it.

KUDLOW: All right.

CRAMER: Breath of fresh air. Breath of fresh air. The professor...

KUDLOW: Tar Heel economist Koleman Strumpf, we thank you very much for defending...

CRAMER: Maybe his team will start being better.

Prof. STRUMPF: Great.

KUDLOW: ...what some think is an indefensible position.

Anyway, next up on K&C we got a market roundtable. And later on, Wal-Mart is making a play for the Southern California grocery market. But does the discounter bring in jobs or depress the local economy? Oh, don't be silly. It's the greatest company in America. Anyway, please stay with us. We're rockin'.

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LOAD-DATE: April 9, 2004