Thursday, February 15, 2007

Music downloads do not affect sales

(Via Howard Knopf) Those involved in the P2P debate might remember the 2004 Oberholzer-Gee and Strumpf paper on the effect of music downloads on sales. The paper has now been published in the Journal of Political Economy with updates. The abstract reads:

"For industries ranging from software to pharmaceuticals and entertainment, there is an intense debate about the appropriate level of protection for intellectual property. The Internet provides a natural crucible to assess the implications of reduced protection because it drastically lowers the cost of copying information. In this paper, we analyze whether file sharing has reduced the legal sales of music. While this question is receiving considerable attention in academia, industry, and Congress, we are the first to study the phenomenon employing data on actual downloads of music files. We match an extensive sample of downloads to U.S. sales data for a large number of albums. To establish causality, we instrument for downloads using data on international school holidays. Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period."
I have not yet read the published version, so I do not know if there are any changes to the unpublished one. The original prompted some angry replies, and even some reasoned rebuttals.
The study comes at a time when EMI has worried the music industry by stating that its profits have plummeted because of decreasing sales.

IF P2P does affect sales (this is a big IF), then doesn't that mean that the music industry has lost the war on piracy? Suing all of those users has not had an effect, so it may be a good time to re-think business models. I think that getting rid of DRM may actually do the trick. I know that I would buy more from iTunes if their music was DRM-free.


Anonymous said...


Andres Guadamuz said...

Thank you for the thoughtful and considered reply.