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Economists say P2P file-sharing fuels art

Moneymaking? Not so much

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A pair of economists have released a report arguing that file-sharing doesn't stifle the creation of music, films, and books. On the contrary, they say, weaker copyright protection has benefited society.

Felix Oberholzer-Gee of Harvard University and Koleman Strumpf of the University of Kansas recently published a working paper (that is, a complete draft of a work-in-progress study soliciting feedback) to Harvard Business School asserting the benefits of internet piracy.

While the study concedes that piracy may harm some business models, it says the technology hasn't killed the incentives behind artists and entertainment companies to produce new works.

And that, the paper says, is the real point behind copyright.

For example, the United States Constitution states the intention of copyright law is "To promote the progress of science and useful arts, by securing for limited times...exclusive right to their respective writings and discoveries." So the paper claims a litmus test for copyright should be whether progress (or art) flourishes or flounders in the age of P2P.

Even if a weakened copyright regime turned out to reduce industry profitability, it is not obvious whether a decline in profits would undermine the incentives to create, market and distribute artistic works. Two considerations seem particularly important. First, as copyright weakens, the effective price of music, movies, and books falls and consumer willingness-to-pay for complements increases. If artists derive income from these complements as well, the overall incentives to produce new works might not decline. For instance, as music becomes effectively available for free, the price of concerts, a complement to music, is likely to rise, and artists who earn income from concerts might not be hurt by a decline in music sales. Similarly, authors might be better able to supplement their income from books through speaking tours if many more readers are familiar with their writings.

The authors' music example, however, would assume all worthy musicians have a major interest in live performances or alternatives to albums. (For instance, The Beatles didn't like doing live shows towards the end of their career. Should they have been kicked to the curb for it?) But even if the money can still flow, what impact has file-sharing had on its production?:

While album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 (including 25,159 digital albums) were published. Even if file sharing were the reason that sales have fallen, the new technology does not appear to have exacted a toll on the quantity of music produced. Obviously, it would be nice to adjust output for differences in quality, but we are not aware of any research that has tackled this question.

Similar trends can be seen in other creative industries. For example, the worldwide number of feature films produced each year has increased from 3,807 in 2003 to 4,989 in 2007 (Screen Digest, 2004 and 2008). Countries where film piracy is rampant have typically increased production. This is true in South Korea (80 to 124), India (877 to 1164), and China (140 to 402). During this period, U.S. feature film production has increased from 459 feature films in 2003 to 590 in 2007

The economists say what needs to be empirically measured is whether income from complementary products offset the decline in income from internet piracy. They do claim there's "clear evidence" that income from compliments have risen in recent years. "For example, concert sales have increased more than music sales have fallen," the paper states. "Similarly, a fraction of consumer electronics purchases and internet-related expenditures are due to file sharing."

The paper concludes that file-sharing technology has weakened copyright protection, but the policy discussion surrounding it has been "overly narrow," focusing on the legality of new technology and whether or not declining sales in music are due to piracy.

"Copyright exists to encourage innovation and the creation of new works; in other words to promote social welfare," the paper states. The question to ask is thus whether the new technology has undermined the incentives to create, market, and distribute entertainment."

The paper ends by noting that because the music industry – the biz with the largest purported impact from piracy – has more than doubled the amount of recordings produced since 2000, it's hard to argue that file-sharing has lowered the incentives to create new works.

A copy of the working paper can be found here. ®

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