The record industry believes – to hell with that, it knows – that file sharing is hurting its sales of CDs. Yet here come two economists (see today's New York Times) who say the opposite:
But what if the industry is wrong, and file sharing is not hurting record sales?It might seem counterintuitive, but that is the conclusion reached by two economists who released a draft last week of the first study that makes a rigorous economic comparison of directly observed activity on file-sharing networks and music buying.
"Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates," write its authors, Felix Oberholzer-Gee of the Harvard Business School and Koleman S. Strumpf of the University of North Carolina at Chapel Hill.
The industry has reacted with the kind of flustered consternation that the White House might display if Richard A. Clarke showed up at a Rose Garden tea party. Last week, the Recording Industry Association of America sent out three versions of a six-page response to the study.
The problem with the industry view, Professors Oberholzer-Gee and Strumpf say, is that it is not supported by solid evidence. Previous studies have failed because they tend to depend on surveys, and the authors contend that surveys of illegal activity are not trustworthy. "Those who agree to have their Internet behavior discussed or monitored are unlikely to be representative of all Internet users," the authors wrote.
Instead, they analyzed the direct data of music downloaders over a 17-week period in the fall of 2002, and compared that activity with actual music purchases during that time. Using complex mathematical formulas, they determined that spikes in downloading had almost no discernible effect on sales. Even under their worst-case example, "it would take 5,000 downloads to reduce the sales of an album by one copy," they wrote. "After annualizing, this would imply a yearly sales loss of two million albums, which is virtually rounding error" given that 803 million records were sold in 2002. Sales dropped by 139 million albums from 2000 to 2002.
"While downloads occur on a vast scale, most users are likely individuals who would not have bought the album even in the absence of file sharing," the professors wrote.
In an interview, Professor Oberholzer-Gee said that previous research assumed that every download could be thought of as a lost sale. In fact, he said, most downloaders were drawn to free music and were unlikely to spend $18 on a CD.
"Say I offer you a free flight to Florida," he asks. "How likely is it that you will go to Florida? It is very likely, because the price is free." If there were no free ticket, that trip to Florida would be much less likely, he said. Similarly, free music might draw all kinds of people, but "it doesn't mean that these people would buy CD's at $18," he said.
This is Mad Professor talk. Counter-intuitive? Make that bonkers. Crazy. These guys call themselves economists but they clearly don't have any understanding of economic behaviour, otherwise known as shopping. None at all. Not the faintest notion. Who is paying these fools? Why?
They have analysed the behaviour of people who are musical downloaders and who are not CD buyers, and have discovered – surprise surprise – that they download stuff from time to time, but don't ever buy CDs. Cock-a-doodle-do.
The point is not just to observe that "these people wouldn't have bought CDs anyway", but to understand why they wouldn't. And why they wouldn't is that these non CD buyers have stopped being or never in the first place became CD buyers. All the Professors are saying is that downloaders are not CD buyers, ergo, downloading doesn't in the short run "affect" CD buying. This is like saying that, because I won't buy a black plastic record or a cassette of some particular recording if denied the opportunity to buy it on CD (which I definitely won't), CDs therefore have had no impact on black plastic sales or cassettes, when in truth, and as everyone with two brain cells to rub together knows, CDs pretty much destroyed the black plastic and cassette trade.
What these guys are saying is that because, if your car breaks down, you don't immediately hire a horse, therefore cars haven't hurt the horse trade.
I am an unashamed member of the CD buying generation, as all regulars here will know. Having struggled for a quarter of a century first with black plastic records and then with cassettes, I and my contemporaries hit the CD shops when they finally arrived and became reasonably cheap to shop in like Visigoths hitting Rome, and so it has continued. I love the things, and not just the music they make but the things themselves.
But the next generation, when working out how to supply itself with entertainment in general and musical entertainment in particular, looked at CDs and said: pass. And why? Well, lots of reasons, to do with price and portability and computers, but mainly because there was now another way to get hold of music. They turned their backs on CDs because they could. They may possess CD players, on the same sort of basis that I possess a cassette player, to play back tapes of radio broadcasts and whatnot, but they don't buy pre-recorded CDs. Ergo the CD business is collapsing, and the music companies know this, and know why, just as everyone else does, apart from these two Mad Professors.
For a restatement of the above truisms, see also this, which makes sense. The Mad Professors do not.
Your logic seems pretty sensible to me. Given conditions favorable to me buying things in general, I tend to buy quite a few CD's. Given the conditions I was in during my first year of college, I mostly downloaded music. What the music industry needs to worry about are people who have lots of CD's and lots of friends with CD burners. It's a lot harder to track them. =)
Spot on I think Tex!
