File-sharing’s effects on music sales

Who should we believe? The RIAA or empirical data?

As part of a larger discussion on copyright, we (JoMC 711) recently discussed RIAA claims that file-sharing and illegal downloading are directly responsible for lost music sales. In fact, the RIAA blamed file-sharing for its nearly 11% drop in sales in 2002, even though due to 9/11, the entire economy was down in 2002.

I’ve long believed that most downloads are of songs that would not be purchased under any circumstances. On the contrary, I believe that the more we are exposed to, the more we likely will indeed buy, having benefited from sampling a little of this and a little of that. It’s why Indian restaurants have buffets. If we could try a little lemongrass soup and the curry of the day, we might come back and buy a lot. By being able to listen to one song by a band we’ve never heard of, we might find we really dig it and decide to plunk down the money to buy a CD or a lot of songs by that band.

My students in JoMC 711 unearthed evidence that in fact, file-sharing does likely boost music sales rather than dilute from them. Rebekah Radische found the 2004 paper, “The Effect of File Sharing on Record Sales An Empirical Analysis” (warning: PDF download), by Harvard’s Felix Oberholzer and Kansas U’s Koleman Strumpf. They concluded that:

“. . . file sharing has no statistically significant effect on purchases of the average album in our sample. Moreover, the estimates are of rather modest size when compared to the drastic reduction in sales in the music industry. At most, file sharing can explain a tiny fraction of this decline. This result is plausible given that movies, software, and video games are actively downloaded, and yet these industries have continued to grow since the advent of file sharing.”

More evidence from C|Net

Another student wondered why the RIAA would make such a big deal about lost sales, even resorting to suing its own customers by the thousands, if there wasn’t some fire in the middle of all that smoke. Hmm… Maybe it is because we resent an $18 price when we know the disk required only about $1 to produce? Maybe it is because the RIAA is so entrenched, so afraid of change and loss of control, that it is willing to recklessly sue dead people and grandmothers rather than adapt and change.

It all is reminiscent of the oligopolistic big distribution companies’ reaction to radio, which they believed would kill sales. Of course the effect was the opposite. Major League Baseball fought televised broadcasts of its games, fearing that folks would stay home and not want to go to the ballpark. The league actually restricted ABC to two cameras for fear that too much realism would siphon off ticket sales. It’s not about “piracy” and “theft” and the erosion of our national moral fiber. It’s about controalbuml and money-grubbing greed.

8 Responses to File-sharing’s effects on music sales

  1. Britt Ozburn says:

    Our discussion earlier today reminded me of an article I read in “Billboard Pop Memories: 1890-1954” by Joel Whitburn. He wrote of how John Philip Sousa, composer of “The Star-Spangled Banner”, felt threatened by the early development of the recording industry in the 1890s. He referred to recordings as “canned music” and said that they would bring the demise of concerts altogether. Over one hundred years later, we see where that prediction went. Recordings have only strengthened concerts.

  2. Scott Perkins says:

    As a musician, I feel obligated to play devil’s advocate to the statement, “Maybe it is because we resent an $18 price when we know the disk required only about $1 to produce?” Sure the physical CD, case, and booklet cost less than a dollar to produce, but a lot goes in to making a great album. Artists, producers, engineers, writers, and everyone up through the corporate big-whigs at record companies all put a lot of time, energy, and money into an album, and they deserve to be reimbursed. Also, if you compare the cost of music to other art or entertainment, it’s not more expensive (Think about buying a ticket to a baseball game, seeing a movie at a theatre, or buying a nice reprint of a piece of artwork).
    I also have to argue that the RIAA should sue people who steal music- it’s bad for the art for them not too. The whole idea of capitalism is that people who produce things that others want deserve to be reimbursed for their time and investment. People obviously deem music worthwhile as so much of it has been illegally shared. Just because it’s so easy to copy an mp3 doesn’t mean there’s no value in the content.
    All in all i think stores like I tunes that allow you to preview albums and buy them for a very reasonable price will eventually become the only way to buy music, and for the sake of art, people need to respect those who make good music by purchasing their work.

  3. Whitney Williams says:

    This makes me wonder economically where the eqilibrium point would fall on the supply and demand chart of CD sales. I would guess that it is less than $18.
    Also, with technological developments, I think CDs will be phased out completely in the future. MP3 players, namely the iPod, will replace any need for CDs. Select cars now have a direct connection point for iPods, so I have to agree with Scott and say the way of iTunes ill eventually become the only way to buy music.

  4. Lydia says:

    I am torn with my feelings on this subject. I understand the argument that file sharing did not affected the decline music sales a couple of years ago. The argument saying that when sales declined the whole economy was declining makes it easy to think that when the economy was rebuilding, so were the sales of the music industry. Maybe file sharing is not as much of a factor in this growth. Whether file sharing contributes to the gain or loss of sales is questionable, but I believe there is a much larger component to this issue.

    Yes, the cost of buying a CD is overpriced, but how can we expect musicians to sell their product for the price that it costs to produce it? I’ve never seen an artist sell a painting for just the cost of the canvas and paints used for the masterpiece. The extra cost is for the labor and pure talent. I put musicians in this same catagory as an artist.

    I don’t know if file sharing plays a part in the increase or decline of sales in music, but I do believe it is important to support musicians for their art, talent and the projects that support and consume their lives. It that means more file sharing, then okay. If that means buying their music from itunes or a store… then okay. I guess we’ve got to figure out what is truly the best route to take.

  5. kt clayton says:

    Suing dead people is lame, and so is the RIAA. It seems that they have become the weakest because they can’t keep up with the technology, and they are going to great and desperate lengths to try and keep up. They should start investing in ways to adapt to the new trend rather than investing in lawyers. Yes, the process of CDs is good for capitalism, but if they aren’t the strongest in this situation then they need to either change or stop what they are doing–we all know what happens to the weakest link.

    Another thought– do they consider how much money people spend on concerts? My concert adventures have included purchases of tickets, clothes, beer and gas, and with all those components added up I am sure that I have spent more supporting the artists than my mother has buying her Enya CDs. I wouldn’t go see a show if I couldn’t get my hands on their songs quickly and easily and downloading music not only allows me to do so but also provides me with a way to expand my collection of wierd tastes. CDs just aren’t cutting it anymore.

  6. Tara says:

    I believe suing fans and customers is absolutely absurd and I have lost a lot of respect for the major record labels since this began. File sharing is a great way to be able to listen to all kinds of music (the longtail) instead of being just exposed to the top 20 songs over and over again on the radio. For them to say file sharing was the reason for decreased sales is a flat out lie and just an excuse for them to try and make even MORE money.

    Why did listening to music have to become such a money-making driven industry? It is supposed to be a form of art. I know if I browse a few paintings that I like, then I will probably be more likely to go out and buy from that artist. This is a personal subject to me because I plan to go into the music business, but since MySpace began, I have a new faith in my future and passion for music. I search for about two to three hours a day finding new music and listening to artists share their music. MySpace has really helped with the long tail. I have found music that I would have never been exposed too, and bought the cd’s from the artist’s MySpace page. Since the RIAA has started suing customers, I no longer buy CDs from major stores. I simply order it from the MySpace artist page, which is great because most independent artists sell their cd for about $7-$10. If they think file sharing has decreased sales, maybe they should think about what suing their fans and customers did and will do to sales and their reputation, if they even care.

  7. […] Wow! A froth of engagement here at Wandering Rocks, and for that I thank the Berry students. Great discussion on the RIAA’s oligopoly, on the importance of entrepreneurship in the future (and the present) of undergraduate communication curricula, on the discomfort of seeing so much of the physical world so quickly migrating into the virtual ether of Second Life, and on the balance between small “j” journalism of hyperlocality and big “J” journalism that seeks to meaningfully cover the world. […]

  8. Melissa says:

    I agree with Lydia, it is important to support artists for their talent and passion. Music is an art! Now about downloading music. I have and still do download music for free (though I actually have not recently). However, when I received an iPod less than a year ago, I began using iTunes and purchasing music from the iTunes store as well. I agree with you too Dr. Carroll. Oftentimes, I will download a song or two by a band and then determine if I want to buy their CD. Even though I have not paid for those two songs and could probably download more for free, I will buy the CD. Even though it is going to a band’s concert that pays them the big bucks, not buying their CD, I need to listen to their CD and truly enjoy their music before I will pay the big bucks to go to their concert. It’s all one big circle it seems.

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