How Bad Is Music File Sharing? – Part 15

In his 2009 working paper, Leung constructed a dataset from 884 undergraduate students at the University of Minnesota to demonstrate that music file sharing does hurt record sales. However, music file sharing contributes approximately 20% to iPod sales. How the author came to these results by a conjoint analysis is further discussed below.

The survey was conducted from fall 2007 to spring 2008 in seven undergradute classes with 884 students. In the first part, the students were asked their demographics, their Internet access and iPod consumption. In the second part, the respondents reported their recent music consumption from CD, iTunes and P2P file sharing networks. The third part contained a conjoint survey, in which the students had to make concrete choices from three options for music listening: (1) from iPod nano, which costs US$ 200; (2) from the computer, and (3) from radio. Within each option the students had to finish two sub-tasks. If the repondent chose the iPod-option, she/he had to decide how many songs she/he wanted to download from P2P file sharing networks if the fine per song were US$ 200/song and if the probability of getting caught were 1:2000 songs. She/he had also to decide how many songs she/he wanted to buy from iTunes store if a song costs US$ 0.3 and how many CDs she/he wanted to buy for US$ 5 per unit. Overall, the students had to finish twelve tasks including two sub-tasks each. In sum, 270 students answered this part of the survey.

Descriptive statistics revealed that around 90% of the students have a weekly income less than US$ 200. On average they spend 3-4 hours surfing on the Internet. They owned 2,508 songs on their computer, which were bought by 59.8% and pirated by 61.0% of the repondents. On average, students buy one CD every other month and four to five songs each month from online music stores. However, 70 songs per month are downloaded by the respondents. For those who “pirated” music recently, the average number of downloads was roughly 135 songs per month. Finally, more than 70% of the students own an iPod.

On the basis of the results of the conjoint analysis, Leung estimated a demand function for music with three dependent variables: CDs, iTunes songs and pirated songs from P2P file sharing networks. For each dependent variable an instrument variable was chosen, e.g. the probability of getting caught “pirating” music as instrument for the demand for music from file sharing networks.

The regression results indicate that students share more music and buy more iTunes songs when they own an iPod. In contrast, if students do not own an iPod, they download 22.85% less music from P2P sites, consume 8.81% songs from iTunes, and buy 0.73% more CDs. Students download less music when punishment is more severe. When the (theoretical) fine increases from US$ 100 to US$ 200, students would download less music from P2P sites, consume 1.03% more songs from iTunes and buy 0.54% more CDs.

This leads to the conclusion that music piracy does hurt record sales. “When students pirate 10% more music through P2P web sites, they buy 0.7% fewer iTunes songs and 0.4 fewer CDs” (Leung 2008: 22).

 

References

Leung, Tin Cheuk, 2009, Should the Music Industry Sue Its Own Customers? Impacts of Music Piracy and Policy Suggestions. Working paper, University of Minnesota, November 8, 2008.

In part 16 the article “Do Artists Benefit from Online Music Sharing?” by Gopal et al. will be summarized.