Thursday, July 22, 2004

File Sharing Has No Impact on CD Sales

GUARDIAN – Despite the industry's belief that file sharing is anathema to record sales, a recent study has shown that it may not be so clear cut. "Downloads have an effect on sales that is statistically indistinguishable from zero," the controversial report claims, even going so far as to suggest that for popular albums, "the impact of file sharing on sales is likely to be positive".

The study, by Felix Oberholzer-Gee, Associate Professor in the strategy unit at Harvard Business School, and Koleman Strumpf, Associate Professor in the economics department at the University of North Carolina, analyses sales and download data, and its conclusions contradict the established music industry line. During the last quarter of 2002, the pair gathered data from two peer-to-peer file sharing servers on the Open Nap network and matched individual downloads to the weekly sales figures of 680 chart albums.

"Our hypothesis was that if downloads are killing music, then albums that are downloaded more intensively should sell less," says Strumpf. But, after adjusting for the effects of popularity, they discovered that file sharing has "no statistically significant effect" on sales. . .

So, if downloading hasn't caused the slump in sales, what has? There are several factors that could be involved, but the easiest explanation is the popularity of DVDs. "Over the period 1999 to 2003, DVD prices fell by 25% and the price of players fell in the US from over $1,000 to almost nothing," says Strumpf. "At the same time, CD prices went up by 10%. Combined DVD and VHS tape sales went up by 500m, while CD sales fell by 200m, so a possible explanation is that people were spending on DVDs instead of CDs."

Prior to Oberholzer-Gee and Strumpf's report, there were no empirical studies based on actual file sharing behaviour, and the music industries in the US and the UK have based their policies on, at best, incomplete research. At worst, the surveys and analyses they quote are misleading and inaccurate. Yet still the RIAA has sued its customers - an action Strumpf calls "one of the stupidest things in the world to do". The BPI has stated it is "prepared to go that route if forced".

Some even question whether the fall in sales the RIAA quotes is real, or a product of a creative redefinition of the word "sale". Even if it is real, there is one final fly in the ointment that can't easily be explained away: during the past nine months, CD sales in America have increased by 7%, despite continued growth in file sharing. As Strumpf says: "If file sharing is killing record sales, why are records starting to sell better?"

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