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Editorial by Gene Pitts
Owner and editor of the audiophile voice.
"Downloading Doesn't Cut into Record Sales." That's wha tit said, all right. It was as startling as finding your lottery ticket has won the Big Prize. I read The New York Times piece a second time, but I'd gotten it right initially. Some heavy-duty university professors, one from the Harvard Business School, had actually gone out and done the legwork to nail down whether sharing of music files actually does reduce CD sales.What follows is from their press release, and you can download a PDF from their site if you want to read the whole thing.
"This is the first study that directly compares actual downloads of music files and store sales of CDs. The authors, Associate Professor Felix Oberholzer-Gee of Harvard Business School and Koleman Strumpf, Professor at the University of North Carolina, Chapel Hill, conclude: ‘File sharing had no effect on the sale of popular CDs in the second half of 2002. While downloads occurred on a vast scale during this period – 3 million simultaneous users shared 500 million files on the popular network FastTrack/KaZaA alone – most people who shared files appear to be individuals who would not have bought the albums that they downloaded.'
"File Sharing Cannot Explain the Decline in Sales of Music during this Period: Our analyses show that there is no relationship between the number of downloads of a particular album and sales of this album. Even in our most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy. If this worst-case scenario were true, file sharing would have reduced CD sales by 2 million copies in 2002. To provide a point of reference, CD sales actually declined by 139 million copies from 2000 to 2002.
"More Popular CDs Benefit from File Sharing: The effect of file sharing on sales depends on the popularity of a release. For the least popular albums (with sales of less than 36,000 copies) we find a small negative effect. In contrast, for the top 25% of albums (with sales of more than 600,000 copies) we find a positive effect: 150 downloads increase sales by one copy. This effect is particularly important because the profitability of the music industry depends almost entirely on the success of the most popular albums.
"File Sharers Rarely Download Entire Albums; They Download a Small Selection of Songs: In this study, we track downloads of songs on 680 popular albums. All albums in our study were included in one of the Billboard Charts in the fall of 2002. Although these albums do well commercially (the average release sells more than 150,000 copies), more than 50% of the songs on these albums are never downloaded. 75% of the songs are downloaded no more than two times, 90% are downloaded fewer than 11 times.
"Songs from Top Current Albums Are Most Often Downloaded: Not surprisingly, not all types of music are equally popular among file sharers. Songs from albums that are on the "Top Current" Billboard Chart are most likely to be downloaded. "Alternative Albums" are the second most popular musical genre among file sharers, followed by Hard Rock and Catalogue albums. The least likely to be downloaded are songs in the categories Jazz, Latin and New Artists.
"Marketing Strongly Influences What People Download and What They Buy: We find strong evidence that the music industry's marketing campaigns continue to influence what individuals listen to. For example, showing a music video on MTV increases both the number of downloads and legal sales of that release.
"U.S. Has Largest Number of File Sharers: 31% of all individuals who download music live in the United States. Other important countries are Germany with a 13% share of worldwide users, Italy with 11%, Japan with 8% and France with 7%. File sharers in the United States are particularly active. While they represent 31% of worldwide users, they download 36% of all files.
"Germany is the Most Important Foreign Supplier of Music Files: U.S. file sharers download files from all over the world. Only 45% of the files downloaded in the United States come from computers in the U.S. 16% of music files are downloaded from computers in Germany, 7% from Canada, 6% from Italy, 4% from the U.K. A legal strategy that focuses mostly on the United States is unlikely to change the supply of music files.
"Why is this study unique? Previous studies rely on surveys to assess the effect of file sharing on music sales. This is problematic because we don't know if survey participants truthfully respond to questions about an illegal activity. This study is unique in that it uses data from file-sharing servers, where we directly observe 1.75 million downloads during 17 weeks in the fall of 2002. Using statistical methods, we can then test if the sale of an album declines more strongly if that album is downloaded more often."
The full text of this interesting study is available at www.unc.edu/~cigar/papers/FileSharing_March2004.pdf or contact the authors: Felix Oberholzer-Gee, Harvard Business School, foberholzer@hbs.edu; Koleman Strumpf, UNC, Chapel Hill, cigar@unc.edu.
