How Bad Is Music File Sharing? – Part 12

Bounie et al. conducted an anonymous online survey in two French graduate schools in order to examine the factors that influence the probability to increase/decrease CD purchases after acquiring MP3 files. The results originally published in a 2005 working paper suggest “(…) that there exist two populations of music consumers: people who sample music a lot (explorers) and those who do not sample (the pirates)” (Bounie et al. 2005: 1). This result indicates that music fans among students prefer to sample music and, therefore, their purchases of CDs tend to increase, whereas students with little interest in music use MP3 files as direct substitute for CDs. More details you can find here.

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How Bad Is Music File Sharing? – Part 11

Holland Mortimer’s and Sorensen’s working paper does not directly address the relationship between file sharing and record sales, but the authors indirectly show that file sharing affected the trade-off between sales of recorded music and concert revenues. They come to the conclusion that the advent of file sharing in 1999 appears “(…) to have eroded the profitability of selling record albums.” However, these changes “(…) may have similtaneously boosted demand for live performances. (…) For artists, the decline in revenues from recorded music after 1998 is striking, but appears to have been more than offset by a concomitant increase in concert revenue. Total industry revenues, on the other hand, have not fully recovered, despite the increasing contribution of concert revenue to the total” (Holland Mortimer and Sorensen 2005: 32).

More can be read here.

How Bad Is Music File Sharing? – Part 10

Wendy Chi examined in a John Hopkins University working paper (Chi 2008) whether file sharing crowds out purchases of physical and digital music by using Forrester Research’s consumer mail surveys for the years 2004 to 2006, which are representative samples for the U.S. and Canada. In her study, Chi comes to the result that “illegal” downloads and physical and non-physical music purchases are positively correlated and that the sampling effect of file sharing dominates the substitution effect. Therefore filesharing does not necessarily hurt music sales. Why this should be the case can be read here.

How Bad Is Music File Sharing? – Part 9

In April 2006, Alejandro Zentner published in the Journal of Law and Economics an article entitled “Measuring the Effect of File Sharing on Music Purchases”, which was based on his dissertation of the same titel, published the year before. Originally Zentner presented the results in a 2003 working paper, and a 2005 article in Topics in Economic Analysis and Policy was also be based on these findings. The results of the study suggest that “(…) peer-to-peer usage reduces the probability of buying music by 30%.” This means that “(…) sales in 2002 would have been around 7.8 percent higher.” (Zentner 2006: 63).

How Bad Is Music File Sharing? – Part 8

Martin Peitz from the University of Mannheim and Patrick Waelbroeck from the Ecole nationale supérieure des télécommunications in Paris focus in several articles on the impact of file sharing on music record sales. In a 2004 article in the Review of Economic Research on Copyright Issues they provided empirical evidence that music downloading have caused a worldwide reduction in music sales of about 20%. In contrast, they argue on the basis of a theoretical model in a 2006 article  in the International Journal of Industrial Organization – based on 2005-working paper – that due to the sampling effect the record labels do not necessarily suffer from file sharing activities. How the come to these different conclusions can be read here.

How Bad Is Music File Sharing? – Part 7

In their working paper Curien and Moreau (2005) proposed a model of the music industry under “piracy” in which they took into account quality, variety, as well as price adjustments and showed that P2P file sharing networks could have a positive impact on the music industry as whole (recorded and live music as well as complimentaries such as ringtones). However, record companies bear almost all of the negative effect, whereas artists rather benefit from it, since royalties are often the smallest amount of their income, whereas “piracy” tends to boost live performances.

How Bad Is Music File Sharing? – Part 6

Bayaan (2004) not only theoretically investigated the impact P2P file sharing on record sales but also examined how technological advances in the recording of music affected the music industry. He assumed therefore that firms exercise monopoly power over artists and examined the effects of technological change on profits and the number of artists signed. He then attempted to model various steps that a firm can take dealing with file sharing technology – either investing in higher quality product or pursuing legal remedies. Finally, Bayaan focused on the artists’ decision and their ability to produce and distribute their own music on the Internet. The author came to the conclusion that technological advances “(…) leads to more artists and more variety within the music industry” (Bayaan 2004: 1) and increases social welfare.

How Bad Is Music File Sharing? – Part 5

Liebowitz tried to provide theoretical evidence in several papers (2002, 2003, 2005) that there is negative impact of P2P file sharing on record sales. The most elabatored paper is his article in the Journal of Law and Economics, which fused earlier research on this topic (Liebowitz 2006). Liebowitz’s arguments are based on microeconomic theory and he identifies four effects of file sharing that might have an impact on record sales: substitution, sampling/exposure/penetration, network effects and indirect appropriability. Liebowitz analyses all four effects and concludedthat the substitution effect is dominant over the sampling effect, which can be also negative under specific circumstances. All other effects that are positively correlated with record sales are negligible. Further, he investigated other factors that might affect record sales, but none of them are able to explain the decrease of record sales in the past 10 years.

How Bad Is Music File Sharing? – Part 4

Liebowitz’s article “Testing File-Sharing’s Impact on Music Album Sales in Cities” was available as an extended working paper version in 2008 (Liebowitz 2008a), before it was published in the journal Management Science in the same year (Liebowitz 2008b). However, it was originally made available as a working paper in September 2005 (Liebowitz 2005) and in a revised version in April 2006 (Liebowitz 2006).

In his study Liebowitz examined the extent to which file sharing had caused the decline in sound recording sales in the U.S. from 1998 to 2003. Since no direct measures of file sharing exist, Internet penetration was used as a proxy for file sharing. This assumption implies that the higher the Internet penetration the higher is the level of music file sharing.