Wednesday, April 14, 2004 12:00AM EDT

Music industry in uproar over UNC research

		Koleman Strumpf, of UNC-Chapel Hill, was surprised by the reaction of his economic research on file sharing. Staff Photo by Harry Lynch
		KOLEMAN S. STRUMPF
		HOMETOWN: Philadelphia AGE: 35 TITLE: Associate professor of economics, UNC-Chapel Hill EDUCATION: Ph.D., economics, MIT, 1995 A.B. with honors and distinction, economics, Stanford University, 1990 B.S. with honors, biology, Stanford University, 1990 Phi Beta Kappa, 1989 RESEARCH: Currently focuses on the economics of crime, such as illegal sports bookmaking and peer-to-peer file transfer networks. He has also written papers on government decentralization, historical betting on presidential elections, political economics, local government behavior and health economics. ONLINE To read Strumpf's paper, "The Effect of File Sharing on Record Sales, An Empirical Analysis," visit his Web site at http://www.unc.edu/~cigar Click on "Working Papers" in the left margin.

By JONATHAN B. COX, Staff Writer

Koleman Strumpf, associate professor of economics at UNC-Chapel Hill, finished a paper last month that was sure to bore.

The title, "The Effect of File Sharing on Record Sales: An Empirical Analysis," was enough to send laymen scampering. The mathematical formulas, tables and appendices would lure only other academics, he figured.

He was wrong.

The paper lit the fuse on a volatile topic, music downloading, and touched off a firestorm of controversy. Strumpf, 35, and a Harvard University colleague concluded that online file sharing doesn't hurt music sales, contrary to contentions of the nation's recording industry executives.

The industry's trade group began a counteroffensive, blasting the paper as incomplete and flawed. National news organizations, including The New York Times, wrote stories about the study. Strumpf received hundreds of phone calls and e-mail notes. Countless Web users and music fans posted their views online.

"I wouldn't have guessed anything at all like this" Strumpf said of the response. "Being a Monday-morning quarterback, I can understand because people are very passionate about this."

The Recording Industry Association of America has long bemoaned declining sales, which it blames on illegal downloading. According to the association, the industry shipped almost a third fewer units in 2003 than in 1999. The industry is suing consumers to stop the free downloads.

"If illegal downloading is not the cause of the precipitous decline in sales of recordings, what is?" asks a six-page paper the recording industry group released in response to the study by Strumpf and Harvard's Felix Oberholzer-Gee. "The results are inconsistent with virtually every other study."

There could be many causes for the decline, Strumpf said. The economy is weaker. More entertainment choices might be drawing consumer dollars. Radio consolidation has reduced variety.

He says the industry's response amounts to, " 'We have 20 studies, they have one.' If 20 or 100 or 1,000 people say the sun revolves around the earth, it doesn't make it so."

Two years ago, Strumpf and Oberholzer-Gee set out to research the matter. Strumpf's interest was piqued by the Napster trial, where the recording industry alleged copyright violations that led to the demise of the pioneering Web site in 2001. In the testimony, experts argued that music downloads had to be the cause of slumping sales.

Strumpf read the studies they cited. They were horrible, he said.

"I was like, 'Boy, this is pretty amazing,' " said Strumpf, a Philadelphia native. "Nobody has done a serious study."

Plus, Strumpf had a personal interest in the topic. He owns several hundred CDs and a 20-gigabyte digital music player that is almost full. He tells visitors seeking his office to simply listen for the music.

Instead of relying on user surveys, as other studies have done, Strumpf and Oberholzer-Gee got logs for two computers servers belonging to OpenNap, a file-sharing community. They were able to see what files users searched for and which ones they downloaded over a 17-week period in late 2002. They compared that activity with sales numbers from Nielsen Soundscan, which tracks music purchases.

By the recording industry's logic, sales of popular albums should decline as song downloads increase. That wasn't supported by the researchers' findings.

The pair concluded that file sharing doesn't hurt sales because those who do it wouldn't buy music anyway, Strumpf said. For the most part, those who download music don't have much money.

While they might download 20 CDs' worth of music, they wouldn't have bought 20 CDs, he said. "At most, file sharing can explain a tiny fraction" of the decline in music sales, the professors' paper said.

Of the phone calls and e-mail he has received, Strumpf says about two-thirds favor the findings. When he surfs the Web in search of comments on the paper, about half support the results.

Those who disagree, however, are equally vocal. Some people have told Strumpf he is stupid or killing their business. He's satisfied to have the dialogue.

"It's good to see people thinking a little more carefully," said Strumpf, who doesn't typically download tunes.

But some of the attention is flattering. Mark Cuban, the billionaire owner of the Dallas Mavericks who cemented his fortune with a site that pioneered online broadcasts, wrote saying he was glad the paper confirmed views that he has long espoused. Harry Shearer, a comedian and the voice of Monty Burns on "The Simpsons," mentioned Strumpf recently on National Public Radio.

But Strumpf concedes that the paper might not be perfect. It was released so the two researchers could get feedback and make tweaks before it it is published in a journal, a process that could take years. It gained attention after it was posted on Web logs and floated by some in the recording industry.

And no matter the ultimate fate, the industry should take note, Strumpf said. "There are huge numbers of people who think the record industry is trying to pull the wool over their eyes," he said. "These are their customers, and I would be awful concerned."