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Kazaa and co ‘not cause of music biz woes’, say Profs

Statistical analysis supports file-sharers

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File sharing has no effect on CD sales, a pair of US academics have claimed.

The finding will not make pleasant reading for the music industry, which claims file-sharing is the cause of the huge decline seen in North American, German and Italian CD sales.

Harvard Business School Associate Professor Felix Oberholzer-Gee and Professor Koleman Strumpf of the University of North Carolina base their claim on research carried during the Autumn and Winter of 2002 to compare song download volumes with CD album sales.

The duo used data taken directly from file-sharing networks to calculate the number of genuine downloads made during a 17-week period. They also looked at official US CD sales data. Factors such as network congestion, song length - ie. download duration - as well as international school and college holidays were taking into consideration. They then used statistical methods to work out whether the sale of an album declines if it is downloaded more frequently.

The result, the professors say, is that there is no such connection.

"File sharing has no statistically significant effect on purchases of the average album in our sample," their report states. "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."

Oberholzer-Gee and Strumpf estimate that it takes on average 5000 downloads to reduce album sales by just a single copy - and that, they say, is a worst-case scenario. On that basis, US CD sales in 2002 would have fallen by two million copies. In fact, they fell by 139 million units between 2000 and 2002.

If the professors' analysis is correct, file-sharing may have actually limited that decline. The professors' study suggests that for the top 25 per cent of albums - those with sales of 600,000 copies or more - one extra copy was sold on average for every 150 downloads. That said, downloads did tend to impact less popular albums - those with 36,000 sales or less. Overall, however, the effect is beneficial, since the music industry makes most of its money from the most popular albums.

"While downloads occurred on a vast scale during this period - three million simultaneous users shared 500 million files on the popular network FastTrack/Kazaa alone - most people who shared files appear to be individuals who would not have bought the albums that they downloaded," the professors say.

However, the professors do provide circumstantial evidence that backs the music industry's claim. The greatest download activity was recorded for users in the US, Canada, Germany and Italy - which are all countries that, according to the London-based industry anti-piracy watchdog the International Federation of the Phonographic Industry (IFPI), have seen some of the biggest declines in music sales.

That seems a pretty close parallel, but the professors suggest we look to other reasons for the decline. Sales, they say, are not lost to downloads since most download are made of songs music fans would not buy anyway. They also point to a similar large decline in LP sales during the late 1970s and early 1980s - a trend that prompted the music industry's 'home taping is killing music' campaign, we recall - which was reversed when CD was launched.

Indeed, CD sales were long been inflated during the 1990s as consumer re-purchased in the new medium albums they already owned.

"Movies, software and video games are actively downloaded, and yet these industries have continued to grow since the advent of file sharing," not the professors. Reasons for the decline in music sales include, they suggest, "poor macroeconomic conditions, a reduction in the number of album releases, growing competition from other forms of entertainment such as video games and DVDs - video game graphics have improved and the price of DVD players and movies have sharply fallen - [and] a reduction in music variety stemming from the large consolidation in radio along with the rise of independent promoter fees to gain airplay".

Related Link

The Effect of File Sharing on Record Sales - An Empirical Analysis (PDF)

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