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Piracy Does Depress Sales

1 February 2012

Attorney Terry Hart disputes the idea that file sharing has not hurt the music industry:

The review, The Economics of Music File Sharing – A Literature Overview, by Peter Tschmuck . . . examines 22 studies which look at the effects of filesharing on the music industry. Because some are skeptical of industry generated studies, it should be pointed out that all the studies here are independent, academic studies — working papers, academic journal articles, and dissertations. Of these 22 studies, 14 — roughly two-thirds — conclude that unauthorized downloads have a “negative or even highly negative impact” on recorded music sales.

. . . .

One notable contribution is economist Stan Liebowitz’s study The Metric is the Message: How Much of the Decline in Sound Recording Sales is Due to File-Sharing? released in November 2011. In it, Liebowitz translates the conclusions of existing studies on the effects of unauthorized downloads on recorded music sales into a common metric to answer the question posed in his title.

His conclusion is stunning: “file-sharing has caused the entire decline in sound recording sales that has occurred since the ascendance of Napster.”

. . . .

The fact that evidence backs up one of the central premises of copyright law is, however, only a precursor to the real question: what, if anything, should be done to address the harm from online copyright infringement? The role of law in answering this question attracts perhaps the most heated debate. That leads to the next question: does copyright enforcement work?

Some point to the 400+ page Media Piracy in Emerging Economies report, released in 2011 by the Social Science Research Council and funded by the Ford Foundation, as providing evidence that enforcement “doesn’t work.” But that’s not what the report concludes, as the editor of the report itself, Joe Karaganis, pointed out in a Torrentfreak article last week:

We talk about the efficacy of enforcement at some length in our Media Piracy report. Many readers have concluded that enforcement doesn’t work.  But that isn’t what we say.  We say, rather, that we’ve found no evidence that it has worked.

. . . .

The idea that there is no evidence showing a harm from online piracy is erroneous, as is the idea that there is no evidence that people will turn to legal alternatives with more effective enforcement.

So where does that lead us?

. . . .

The challenges faced by creators and businesses that invest in creativity in the online environment are myriad and require continuing innovation to craft sustainable business models and take advantage of emerging technologies. But they also require attention to legal protection of private rights to ensure that the public continues to benefit from the talents and creativity of authors and artists.

Link to the rest at Copyhype which has links to several cited studies.

Copyright, Legal Stuff

20 Comments to “Piracy Does Depress Sales”

  1. I have to say, I am highly suspect of a conclusion that states piracy is entirely responsible for the decline in sales. That’s not even reasonable. They are so many other factors at work during this time frame that to narrow it down to any one single cause exclusively makes whatever other valid points they may have had seem questionable to me. Plus, I wonder if any of these studies factor in industry behavior that drives piracy, like the enforcement they claim works, or the over limiting DRM. Or absurdly high cd prices against 99 cent itunes downloads, which must have pushed total sales down to some effect. Not saying piracy has no effect, just that I believe its overstated, and this piece overstates it to an extreme with that “piracy is entirely responsible” line.

    • Also would the people who pirated have actually bought the songs anyway? I don’t think there is a reasonable way to tell that.

    • Nobody seems to consider the possibility that the studios stopped putting out the kinds of music that appealed to a significant number of their former customers and indie bands picked up the slack.

  2. There is no way to prove that a shared item would have otherwise been bought. Surveys aren’t proof. Correlation does not equal causality, unless you are a pastafarian, which conclusively shows that the rise of global warming is directly related to the decline of pirates.

  3. The article is seriously deceptive. Here is the conclusion from Tschmuck’s review of the literature:

    Therefore, simple causalities do not work to understand the present developments in the music. In my understanding, thus, music file sharing is not the (single) cause of the digital revolution in the music industry but, rather, a by-product of altered consumer behavior in the age of digitalization. Instead of calculating more or less elaborated regressions, we need a mix of quantitative and qualitative methods to empirically comprehend what is currently going on in the music industry.

    Here is how the article describes the relationship between Tschmuck’s work and Liebowitz’s:

    Studies since Tschmuck’s only confirm these findings. One notable contribution is economist Stan Liebowitz’s study The Metric is the Message: How Much of the Decline in Sound Recording Sales is Due to File-Sharing? released in November 2011. In it, Liebowitz translates the conclusions of existing studies on the effects of unauthorized downloads on recorded music sales into a common metric to answer the question posed in his title.

    That’s hardly a confirmation. Furthermore, the Liebowitz paper isn’t a study, but, like Tschmuck’s, a review of the literature. Liebowitz re-analyzes the studies that agree with his viewpoint and sprinkles in some very questionable assumptions that allow him come up with his preferred answer to the question he poses.

  4. Hey, this isn’t the original article I was looking for but it will work. When they speak of piracy causing them to loose money, you should view how their industry marks its losses.

    http://www.techdirt.com/articles/20100712/23482610186.shtml

    From everything I’ve come across from Joe and the rest (Hey Joe!) It sounds eerily similar to how book publisher’s claim their losses.

  5. For me, this section means the rest loses a lot of credibility:

    “His conclusion is stunning: “file-sharing has caused the *entire* decline in sound recording sales that has occurred since the ascendance of Napster.””

    Really? Nothing to do with the fact that:

    (a) People consume music very differently now. Selling MP3 singles mean that people can buy the tracks they want (the hits) and not purchase the fillers.

    (b) Selling a digital product is cheaper. No more CDs to press, store, or ship. This cost saving has been (largely) passed on to the customer.

    (c) People can enjoy the music they like in more ways (streaming/subscription services, internet radio etc.) Record labels might be making less in old-school sales, but I doubt they are counting things like ad-revenue sharing, subscription fee sharing etc. in these numbers.

    If you are, say, a Spotify user, you are probably buying less CDs, but are providing income to the labels that is not being counted here.

    There are lots of reasons for the decline in music sales, but to say that file-sharing is the cause of *all* of it is patently false.

    And all such studies should really take account of the fact that the music industry was at the height of its gouging prior to the digital revolution, and sales (and profits) were artifically high as a result.

  6. With an MA degree that included both economics and stats, I pounced on the study with high hopes. After all, big claims like 100% causality have to be backed with strong research and evidence. Nope, not there…in fact, the review is fundamentally flawed even in the basic statistical approach. Noteworthy this isn’t even a peer-reviewed article appearing in a serious journal.

    The guy basically boils down the argument to saying “could the increase in filesharing, multiplied by the negative ratio of displacement” account for the “decrease in record sales”? In other words, if filesharing volumes went up by 100%, and every 10th transfer meant one less sale, then the effect would be 10% (100 * .1)…so if RS sales went down by 10%, ergo the effect CAN BE accounted for by Filesharing alone (not quite, but basic extrapolation without some niggly stats techniques that don’t add much). Note that even if his math was right, it would be COULD ACCOUNT for the change, not that IT DOES. Or even that it is correlated. And all other effects are ignored as assumed to be irrelevant to question if filesharing COULD account for the change on its own. Grrr…

    I feel a new blog entry coming on…

    PolyWogg

  7. Here’s some data the other way:

    http://gigaom.com/2012/01/30/entertainment-industry-growing-despite-piracy/

    Also, look up this guy on wikipedia
    http://paulocoelhoblog.com/
    He apparently got in some trouble with his publisher for putting his own work on piratebay. Since legacy publishers have you in debt to the company store, they made some agreement. BUT the incident got him a lot of publicity, exposure, and discoverability. His sales on everything have gone wildly up, per the reports.

    I suppose it’s not too different than Konrath etc putting books in the “free” column for a few days at Amazon. But less control once it’s “out there” to take it off the intro sale.

  8. We can’t have any real facts in the discussion, that just skews the issue. Piracy is the most destructive thing since the invention of the hydrogen bomb, don’t you know, and we must cripple the internet because of it. If facts and other annoying bits of reality get in the way of you believing me, well then I’ll just do a bunch of slanted studies, misrepresent the findings and top it off with an impartial random survey consisting of media industry executives and their immediate families to prove it to you.

  9. I spent two hours this afternoon, taking this bait. Grrrr. (Some demon in my brain was screaming, “This post is aimed at you!” This is what you get for being a “piracy apologist.”)

    After I post a couple of links, I’m off to read PolyWogg’s blog entry. It’s reassuring to have one’s own conclusions from reading both Liebowitz’s review and Tschmuck’s survey of studies (Okay, so I skimmed. I challenge anyone to get through both of those in 2 hours.) reinforced by people with academic credentials.

    Liebowitz has a big cheering section in a lot of the academic economic community and with several legal eagles who are active in the field of pressing the claims of groups like the RIAA. This is the because he has a long running feud with Oberholzer-Gee and Strumpf, a couple of German academics who did a study on the effects of file sharing on music sales, and found it had a beneficial effect. They made the mistake of not releasing their raw data (or something like that; who wants to go into all the details of these academic tiffs?) and thus drawing down the wrath of the ivory tower upon their heads.

    I also noticed some admittedly older references to his work having been sponsored by the industry in question, but I didn’t investigate those in detail, as they seemed to be circa 2002-2003.

    As for Tschmuck, yeah, I agree 100% with the issues taken by William Ockham to Terry Hart’s creative reframing of the conclusion.

    So: the links:

    http://www.utdallas.edu/~liebowit/intprop/main.htm#canadian

    – Skim — gives you an idea of the kind of umbrage Liebowitz takes with research he views as inherently biased and methodologically flawed.

    http://www.dime-eu.org/node/477

    – One of the authors of that Canadian study criticized by Liebowitz refutes his critique.

    [Optional ;-)
    http://www.ic.gc.ca/eic/site/ippd-dppi.nsf/eng/h_ip01456.html
    The original research of which Liebowitz was so critical.]

    History of P2P Filesharing Research

  10. Okay, so WordPress doesn’t like HTML tags as basic as <a href in comments.

    History of P2P Filesharing Research:
    http://p2pfoundation.net/History_of_P2P_Filesharing_Research

  11. What most people seem to miss is that people are lazy.
    Amazon with Kindle(and I presume B&N, Sony etc. with their readers) have created an almost frictionless buying process.
    Why would I wast my time and go to the effort of searching online for some potentially virus infect file when I can just click the one-click button and be reading my new book in less time that it’d take me to type the book’s name, plus “free” and “download”, into google.

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