For almost a decade now, the major labels (at the beginning there were five of them, now only four, EMI, Sony BMG, Vivendi Universal and Warner) have declared that illegal downloading is ravaging their business by destroying the sales of physical product. One may question this declaration, however, in few of the fact that ever since the RIAA filed its 1998 litigation again the manufacturer of the Diamond Rio MP3 player and extending to its most recent lawsuits against individuals across the country, the music industry has committed more public image faux pas than Dan Quayle and George W combined, making it one of the most hated industries among high school and college students. It should be apparent to everyone now that it is not illegal downloads that is causing the downturn in music sales, as there are many other contributing factors.
This marred image of the industry is evident in the facts. According to an article in Rolling Stone magaine entitled The Record Industry’s Decline:
About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Last year the eighty-nine-store Tower Records chain, which represented 2.5 percent of overall retail sales, went out of business, and Musicland, which operated more than 800 stores under the Sam Goody brand, among others, filed for bankruptcy. Around sixty-five percent of all music sales now take place in big-box stores such as Wal-Mart and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artists.
Nonetheless, a new research study on the issue, commissioned by the Canadian government to explore issues related to copyright reform, was recently released. The study is entitled The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada, and was written by Birgitte Andersen and Marion Frenz, of the Department of Management at the University of London in England. A PDF version of the study is published here.
The results of the new study affirm many of the conclusions found in an earlier study entitled, The Effect of File Sharing on Record Sales: An Empirical Analysis. This paper was published in the February 2007 issue of The Journal of Political Studies, and was written by Koleman Strumpf, professor of business economics at the University of Kansas Business School and Felix Oberholzer of the Harvard University Business School. Both studies directly contradict the claims of the music industry that file sharing is related to revenue losses.
In fact, the new study supports an opposite assertion, i.e., that distribution of music files on P2P networks actually promotes the sale of physical product. Andersen and Frenz found, among people who actually participate in P2P file sharing, downloading actually increases the sale of physical product by a ration of 2 to 1, in other words, on average when a P2P file sharer downloaded the equivalent of two CDs in files, he or she would purchase of one physical CD (Note: I have extrapolated here, as the numbers set forth in the study actually say that for every 12 P2P songs downloaded, physical purchases increased by 0.44 CDs). It is important to note that the study concluded that, when incorporating the Canadian population as a whole (i.e., including the group who participate in P2P file sharing along with those who do not), file sharing on P2P networks has neither a positive nor a negative impact on CD sales.
One fact in the report I found very intriguing is its conclusion that the owners of MP3 players are less likely to purchase physical product. This is interesting, in my mind, because I believe it is connected to the popularity of the iPod and iTunes. If a person purchases the iPod and uses iTunes, there is really no need to buy physical product, whereas when a person uses a different brand of MP3 player, he or she is, in my humble opinion, more likely to go out in search of alternative means of finding music, including purchasing CD’s. I would like to see a study which compares iPod owners with owners of third party MP3 players. It may turn out that the biggest culprit in the demise of the record industry is Apple!
One story I found really revealing is the Rolling Stones article on The Record Industry’s Decline. In it, the author tells the story about how the major labels were unable to come to a settlement with Napster which would have given them immediate access to Napster’s 38 million users. I don’t know the details of that meeting, but it seems to me that when the industry burst that bubble, those 38 million users disbursed into millions of subgroups on P2P networks so varied that it become virtually impossible to get the magic back. Hindsight is, of course, always better than foresight, but this event certainly seems to me to one of the biggest turning points in our industry’s history.
Is the music industry going to survive. Of course! It will certainly not be in the form many traditionalists in the industry wish it to be. CD’s eventually be ancient relics of the past, sought after by collectors much as jazz lovers currently seek out old vinyls and record players. The radio industry will not have control over marketing and thus the role of radio consultants on the industry will be diminished. Marketing efforst will shift to television outlets and Internet marketing. Search engines and online communities will continue to surface new music and expose the long tail. Major labels will no be the sole repository of the major talent, as independents will rise to fill the void, fueled by venture capital from investors. Whatever happens, it going to be an interesting ride!
Some further reading:
[…] The Magic Bubble Bursts: Did the Record Labels make their own grave?By Barry ShrumOne story I found really revealing is the Rolling Stones article on The Record Industry’s Decline. In it, the author tells the story about how the major labels were unable to come to a settlement with Napster which would have given them …Music Row Law – https://musicrowlaw.wordpress.com […]
I remain skeptical. In analyzing this data, assumptions are key. Many other studies show harm.
The earlier study, by Strumpf, professor of business economics at the University of Kansas Business School and Felix Oberholzer, seemed to operate on some peculiar assumptions (one being that downloads of popular tunes have the same impact on sales as downloads of more obscure ones). However, their data is not available for re-analysis.
Stan Leibowitz has a concise critique of the Canadian study as well as a paper in the Journal of Law & Econ. His use of data is extremely careful.
Among other things, he concludes:
His critique of the Canadian study notes:
For more, see his home page.
I am never one to downplay a healthy degree of skepticism. I am constantly reminded of Mark Twain’s crude old saying about statistics, in that “[they] are like ladies of the evening, once you get them down, you can do anything with them.” I certainly don’t maintain any degree of specialization in analysis of statistical data. But I don’t necessarily agree with Liebowitz’s criticism of the Canadian study that limiting the results to only those that participate in P2P networks is “nonsensical.” To me, it seems VERY logical. The claim is that downloading music from P2P networks has created a downturn in the market for CDs. To that end, it seem to me that the conclusion reached by the Canadian researchers is very much on point, and, in fact, only those participants who participate in P2P file-sharing are going to be relevant. Having said that, I also note that the Canadian report includes conclusions based on a sampling of the general population in addition to the limited sampling, so I believe they were trying to cover both bases. Thanks for you comment.
Sorry buddy, but he (Solveig Singleton) is right.
What you are saying, regardless of what you do or dont know about statistics, doesnt stand up logically.
No amount of revisiting figures from that study can change the fact that it is a flawed design. What Solveig is pointing out to you is that the study isnt even measuring what it claims to have measured.
The study may support an idea of what you want to believe (and who wouldnt, we could all relax and know htings are gonna work out ok), but thats not gonna change the underlying facts of the matter.
Wait for some more studies…
There is an undisputable positive correlation between buying music and participating in p2p sharing. Music lovers (customers) who buy music also share it.
You can argue forever if they would have bought more or less without free sharing but the fact remains that if you sue (infuriate) the file sharers you are also infuriating your customers.
The fact also remains that the internet happened and the established music industry has still not figured out what the hell to do with it.
Years ago p2p was mainly college kids, but now it has spread to their parents and all kids too old for Disney or American Idol. A critical mass has been reached where the greed of the major recording companies is being rejected by artists and customers alike. Now the RIAA says all us middle aged folks who put our purchased Garth Brooks and Eagles songs on our personal ipods are criminals. WTF??? That tipped it for me; the major record companies have passed the point of no return.
Adrien
Interesting stuff. I had a weird experience with an music download site recently.
Fine, they don’t want me to use their product I won’t use their product. RIAA can keep their intangible asset in their tangible pocket. Keep losing your customers by calling them criminals and you will see how quickly you lose your business. Can you imagine if a restaurant prosecuted you for transferring the food you ordered from your plate to your mouth? RIAA = Greed + Insanity.