The Dutch study is based on a representative survey of 1,500 Dutch internet users, capturing their behavior and motives in downloading music, films and games, but it also investigated their purchasing behavior related to music, DVDs and games. Although the authors found out that music producers and publishers suffered revenue losses due to file sharing of about EUR 100 million a year, the welfare gains totalled around annually EUR 200 million in the Netherlands.
The research was carried out online between April 2-8, 2008, with 1,500 respondents completing the questionnaire. The descriptive stastistics showed that unlicensed downloading is widespread in the Netherlands: “some 4.7 million people over the age of 15 out of a total of 13.5 million have, over the past 12 months, engaged in downloading without paying on one or more occasions. Downloading is most common with 40% of all internet users doing it, followed by some distance by films (30%) and games (9%)” (Huygens et al. 2009: 61).
The average file sharer in the Netherlands is younger – e.g. the 15 to 24 year age group represents 28% of the music downloaders, whereas it represents only 18% of the Dutch Internet population. The file sharer is often male – 57% of the music downloaders are men versus 52% men in the Internet population. And the file sharer is better equiped with MP3 players (74% of music downloaders vs. 55% of the Internet population) and mobile phones with music-playing capabilitied (61% of music downloaders vs. 48% of the Internet population).
In addition, the file sharers in the Netherlands have different music preferences than the overall Dutch Internet population. Whereas around half of the Internet users prefer easy listening music (including musicals and crooners), only 38% of the downloaders do so. The music genre most preferred by the group of file sharers is HipHop and R&B with 59%, followed by experimental and avant-garde music with 58%, rock (57%), dance (51%) and pop (49%).
Free downloading occurs not only on P2P file sharing networks, which account for 38% of all music downloads, but also on promotional sites (18%), newsgroups (12%), Usenet (8%), FTP-servers (6%) and shared directories (5%). However, it is striking that 48% of the file sharers do not know from which source they download the music.
Most of the downloaders used Limewire to share their music (31%), followed by Kazaa with 21% using it, Emule (9%), Bittorrent.com (8%) and The Pirate Bay (6%).
In the Netherlands, 2.5% of the Internet population have paid to download music in the past 12 months, and 60% of those paying to download are also active in file sharing. 6.5% of the Internet users paid for music on iTunes, 2.9% bought it on amazon.com, 2.3% from planetmusic.nl and 1.2% from music.msn. The rest of download platforms accounts only for less than 1% of the online/mobile music sales.
In comparison of non-file sharers and file sharers in music consumption, the results show that there is no sginificant difference in purchasing behavior: The file-sharers purchased 5.49 albums in the last 12 months, and the non-file sharers bought 5.69 albums. However, the file sharers in the age group of 15-24 years old purchased significantly more albums (5.90 on average) than the non-file sharers in the same age group (3.90 on average). The results also revealed that music file sharers typically visited concerts more often and bought more merchandising than non-file-sharers.
Beside gaining insight into music purchasing and downloading behavior, the survey also tried to find out the relationship between file sharing and buying. The authors formulated, therefore, 3 hypotheses: (1) downloading is a complement to buying (i.e. file sharing meets a different demand and drives consumption in other markets – live performances, merchandising); (2) downloading is an alternative to buying (substitution effect); (3) downloading is a means to get know the product (sampling effect).
Although 73% of file sharers see file sharing as an equal alternative to paying for downloads, the study results also indicate that only 19% of the respondents think that they would purchase more music if file sharing were made impossible. Instead, 54% said that they did not change their purchasing behavior and 27% claimed they would even pay less for recorded music in the absence of file sharing. In addition, for 69% of file sharers discovering new genres as well as new artists is an important feature. Beyond that, file sharing is also a trigger for additional consumption in other markets, e.g. concerts, merchandising, as shown above. The study also showed that there is a considerable sampling effect of music file sharing: “Among file sharers, 63% of music downloaders might yet buy the music they first got for free online” (Huygens et al. 2009: 79). The main reasons for buying after file sharing is that the respondents love the music (80%), they wish to support the artist (50%), and they believe in a higher quality of the CD and wanted to own the CD sleeve and booklet (33%).
After presenting the results of the consumer survey, the authors tried to figure out the economic effect of file sharing. They assumed a substitution rate of music file sharing of about 5 to 7%, or one track less for every 15 to 20 downloads. “[T]his would result in lost revenue of at most EUR 100 million in the Netherlands” (Huygens et al. 2009: 105). However, there is also an additional consumer surplus of file sharing. Regarding the willingness-of-pay, the authors found (Huygens et al. 2009: 106) that “the welfare gains would be more or less equal to half the retail price value of downloads” (Huygens et al. 2009: 105). On this basis, the authors concluded that “[t]he consumer surplus created by music sharing in the Netherlands would then amount to an estimated minimum of EUR 200 million per year” (Huygens et al. 2009: 107), which is a very conservative estimate according to the authors, who believe that the welfare effect of music file sharing in the Netherlands is quite higher.
These results were also included in a recent paper by Van Eijk, Poort and Rutten (2010), who all participated in the TNO study in the previous year.
Eijk, Nico van, Joost Poort and Paul Rutten, 2010, “Legal, Economic and Cultural Aspects of File Sharing.” Communications & Strategies, Vol. 77, 1st quarter 2010: pp. 35-54.
Huygens Annelies, Paul Rutten, Sanne Huveneers, Sander Limonard, Joost Poort, Jorna Leenheer, Kieja Janssen, Nico van Eijk, Natalie Helberger, 2009, Ups and Downs. Economic and Cultural Effects of File Sharing on Music, Film and Games. TNO rapport commissioned by the Ministries of Education, Culture and Science, Economic Affairs and Justice, February 18, 2009.
In part 2 of this series I will discuss David Blackburn’s 2004 working paper “On-line Piracy and Recorded Music Sales”.