Transcript The Impact of File-sharing on Music Sales Stan Liebowitz University of Texas-Dallas Vienna, June 2010

The Impact of File-sharing
on Music Sales
Stan Liebowitz
University of Texas-Dallas
Vienna, June 2010
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1973
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1994
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2007
2008
2009
Albums Sold Per Person
Record Sales in the US
US History of Album Sales (incl dig singles)
8
Predicted Sales (based on historic growth)
6
5
4
Napster Begins
Actual Sales
1
Recent US Sound Recording Revenues
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Total Revenue, Inflation Adjusted, US
Data from RIAA based on
retail list price. CPI from
BLS.
1999
2009
What about Other Top Markets?
Trade (Wholesale) Revenue Change, 1999-2009 (inc ringtn)
1999 Revenues (inflation Nominal 2009
adjusted 2009$)
Revenues
USA
10,826.22
4,562.30
Japan
499,209.03
370,979.74
UK
1,464.48
928.80
Germany
2,036.83
1,046.40
France
1,379.22
622.76
Canada
1,165.96
430.21
Australia
908.72
470.23
Italy
604.22
162.05
Spain
599.83
151.06
Netherlands
345.42
156.11
Switzerland
376.45
186.07
% Change
-57.86%
-25.69%
-36.58%
-48.63%
-54.85%
-63.10%
-48.25%
-73.18%
-74.82%
-54.81%
-50.57%
Possible Explanations of Music Decline
•
•
•
•
•
File-sharing.
[substitution, sampling]
Music got bad.
Ordinary Business Fluctuation. (O/S)
DVD sales growth. (O/S)
Replacement of cassette tapes came to an end.
(O/S)
• Retailer Inventory Improvements. (O/S) More
Later
these
detail in “WILL MP3 DOWNLOADS ANNIHILATE THE
• I examined
Epidemic
ofinDeafness.
RECORD INDUSTRY? THE EVIDENCE SO FAR” in Advances in the Study of
Entrepreneurship, Innovation & Economic Growth 2004 , 229 - 260
Academic Studies Finding Harm
•
•
•
•
•
•
•
•
•
Peitz, M. and Waelbroeck, P. (2004) The effect of internet piracy on music sales:
Crosssection evidence. Review of Economic Research on Copyright Issues 1(2): 71–79.
Zentner, A. (2005) File sharing and international sales of copyrighted music: An
empirical analysis with a panel of countries. Topics in Economic Analysis & Policy 5(1):
Article 21.
Liebowitz, S. J. (2006) File-sharing: Creative destruction or plain destruction. Journal of
Law and Economics 49(1): 1–28.
Michel, N. (2006) The Impact of Digital File Sharing on the Music Industry: An Empirical
Analysis Topics in Economic Analysis & Policy, 6(1) Article 18
Rob, R. and Waldfogel, J. (2006) Piracy on the high C’s: Music downloading, sales
displacement and social welfare in a survey of college students. Journal of Law and
Economics 49(1): 29–62.
Zentner, A. (2006) Measuring the effect of music downloads on music purchases.
Journal of Law and Economics 49(1): 63–90.
Hong, S. H. (2007) The recent growth of the internet and changes in household-level
demand for entertainment, Information Economics and Policy, 2007
Liebowitz, S. J. (2008) Testing File-Sharing’s Impact by Examining Record Sales in Cities.
Management Science, (4) Vol. 54 April, pp. 852-859.
Blackburn, D. (2004) Online piracy and recorded music sales. Working Paper,
Department of Economics, Harvard University.
Academic Studies Finding No Harm
•
•
Oberholzer-Gee, Felix and Koleman Strumpf (2007) “The Effect of File Sharing on
Record Sales: An Empirical Analysis” Journal of Political Economy, 115:1 1-42.
Andersen Birgitte and Marion Frenz (2010) “Don’t blame the P2P file-sharers: The
Impact of Free Music Downloads on the Purchase of Music CDs in Canada” Journal
of Evolutionary Economics
•
Academic Studies Too Preliminary to
Include
Tanaka, Tatsou (2004). Does File-sharing Reduce CD sales?: A Case of Japan
The Andersen/Frenz paper
“ downloading the equivalent of approximately
one CD increases purchasing by about half of a
CD.”
– Conclusion after finishing a 3 year study for the
Canadian Government.
• This level of increase implied that CD
sales in Canada would be zero if it were
not for file-sharing.
• Who can believe that?
New Andersen/Frenz Result
• Shortly after their implications were pointed
out, a new conclusion:
• “on the whole, these two effects ‘cancel’ one
another out, leading to no association
between the number of P2P files downloaded
and CD album sales.”
– Published Version of Paper
Oberholzer-Gee and Strumpf had
similar initial finding
• O/S in their original March 2004 paper they
state:
• “In Table 13, we ask how the effect of file
sharing varies across commercially more or
less successful albums…For the top quartile,
downloads have a relatively large positive
effect”
p. 23
Oberholzer-Gee/Strumpf (Cont.)
• The top quarter of Albums represented most
of the industry sales. So file-sharing would
have a “relatively large positive effect” on the
entire record industry.
• After this was pointed out to them, the table
and result disappeared from the next version
of the paper.
• The result is still in the data, though.
Close Examination of O/S paper
reveals many problems
• O/S conduct 4 tests (“quasi-experiments”) in
addition to their main test. Their conclusions for
each of these additional tests is proven false
upon attempted replication.
• Many claimed facts are untrue. Some are
discussed below.
• See “How reliable is the Oberholzer-Gee Strumpf
paper on file-sharing” available on SSRN.COM.
• But these were not the ‘Main Test’ which
depended on secret file-sharing data.
Whether German school kids are on vacation
or not is the Key O/S Variable
• Reasons why German kids on vacation cannot
have a serious impact American downloads
– Time zone differences [<50%]
– The small fraction of worldwide file-sharers who are
German [7%]
– The small fraction of German file-sharers who are
school kids;
[15%]
is discussed
in “The
–This
The small
fraction of German
schoolOberholzerkids on vacation
[1/3]
Gee/Strumpf
Instrument
fails the Laugh
– Only 5/7 of the days
are school days
– Almost 50% of music isTest”
not in English
– Net result is that German school vacations will impact
less than 1/10th of 1% of files available to Americans.
One second out of the 1496 seconds they find it took
to download a song in their data set.
0
August - 2002
September - 2002
October - 2002
November - 2002
December - 2002
January - 2003
February, 2003
March, 2003
April, 2003
May, 2003
June, 2003
July, 2003
August, 2003
September, 2003
October, 2003
November, 2003
December, 2003
January, 2004
February, 2004
March, 2004
April, 2004
May, 2004
June, 2004
July, 2004
August, 2004
September, 2004
October, 2004
November, 2004
December, 2004
January, 2005
February, 2005
March, 2005
April, 2005
May, 2005
June, 2005
July, 2005
August, 2005
September, 2005
October, 2005
November, 2005
December, 2005
Problems also with their American Downloading Variable.
Check the months that O/S analyze, Sept-Dec 2002. Very little
change in downloading over those months.
Big Champagne: Avg Simultaneous US Users
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
O/S file-sharing measurements are very
different than those of Big Champagne
Change from Previous Month
October - 2002
November - 2002
December - 2002
BC
-1.45%
4.01%
0.95%
O/S
6.85%
221.99%
-31.86%
Further, the O/S difference in downloading by
week varies by 40:1; for record sales 3:1.
Problems with their main test
“The first-stage estimates imply that a one-standarddeviation increase in the number of [German] children
on vacation boosts [American] weekly album
downloads by slightly more than one-half of their
mean.” (O/S, 2007, page 23)
“Half Their Mean” is another way of saying 50%.
So, when some German kids go on
vacation, American File-sharing goes up by
50%.
Believable?
It gets even better.
When 9.8 million German students go back to
school, the O/S result says American file-sharing
would decrease by 150%.
Are you willing to believe that?
Words of Wisdom
Aldous Huxley: facts do not cease to exist
because they are ignored.
John Adams: Facts are stubborn things; and
whatever may be our wishes, our
inclinations, the dictates of our passions,
they cannot alter the state of facts and
evidence.
Mark Twain: Get your facts first, and then you
can distort them as much as you want.
“Music sales have been flat or even rising in major markets with
a quickly growing file-sharing population”. O/S p 39, 2007.
T0: 1999-2005 Market Changes
album
real retail
units
revenue
change
change
USA
-29.81%
-33.81%
Japan
-15.80%
-14.94%
-7.89%
-12.38%
Germany
-42.54%
-44.45%
France
-8.78%
-26.67%
Canada
-28.10%
-49.73%
Australia
-17.52%
-36.31%
Italy
-37.64%
-46.07%
Spain
-50.24%
-57.83%
-25.88%
-48.08%
UK
Netherlands
0
August - 2002
September - 2002
October - 2002
November - 2002
December - 2002
January - 2003
February, 2003
March, 2003
April, 2003
May, 2003
June, 2003
July, 2003
August, 2003
September, 2003
October, 2003
November, 2003
December, 2003
January, 2004
February, 2004
March, 2004
April, 2004
May, 2004
June, 2004
July, 2004
August, 2004
September, 2004
October, 2004
November, 2004
December, 2004
January, 2005
February, 2005
March, 2005
April, 2005
May, 2005
June, 2005
July, 2005
August, 2005
September, 2005
October, 2005
November, 2005
December, 2005
“The number of file sharing users in the U.S. drops twelve
percent over the summer (estimated from BigChampagne,
2006) because college students are away from their highspeed campus Internet connections.” O/S p. 36, 2007.
Big Champagne: Avg Simultaneous US Users
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
“there is clear evidence that income from complements has risen in
recent years. For example, concert sales have increased more than
music sales have fallen.” O/S p. 25, 2009.
25000
Total Revenue, Inflation Adjusted, US
Real Concert Revenue (Pollstar)
Real Recording Revenue in 2009$ (RIAA)
20000
15000
10000
5000
0
1999
2007
2009
“If we also consider the sale of iPods as a revenue stream, the
industry is now 66% larger than in 1997.” p. 21, 2009
• “an important group of papers reports that
file-sharing does not hurt sales at all (Tanaka,
2004; Bhattacharjee et al., 2007;... ” P16, 2009
“Unfortunately, neither the Rob and Waldfogel study nor
Zentner’s work allows inferences about the total impact of file
sharing on record sales because neither paper studies a
representative sample of file sharers.” 2007 p5
• “Rob and Waldfogel (2006) find an average
displacement effect of 20% but report that file
sharing had no impact on hit albums.” p. 16
• “Rob and Waldfogel (2006) find an average
displacement effect of 20% but report that file
sharing had no impact on hit albums.” p. 16,
2009
The Inventory Claim
• “What other factors can explain the decline in
music sales? A first reason is the change in how
music is distributed. Between 1999 and 2003,
more than 14 percent of music sales shifted from
record stores to more efficient discount retailers
such as Wal-Mart, possibly reducing inventories.”
O/S 2007, p 39.
• Although this claim was ludicrous on its face, I
also pointed out that inventory data from NARM
showed that inventories did not even drop.
O/S replied: “Liebowitz’ statistics on inventories …do
not address the question at hand since Wal-Mart's
inventories are not included (Wal-Mart is not a
member of [NARM]”).
Hiding the Data
• “Mr. Strumpf says that he has always been candid
with Mr. Liebowitz about the impossibility of sharing
the data. He showed The Chronicle an April 2004 email message in which he told Mr. Liebowitz about
both the legal concerns and about his promise to
OpenNap not to distribute the data.”
– Chronicle of Higher Education; July 17, 2008
•
From the Future of Music Conference
May 02, 2004
• Jim Griffen: Koleman, why won't you share numbers?
• Koleman Strumpf:
• I was all for opening it, but university counsel told us not to.
This stuff will all be made available to anyone,
eventually. As soon as the legal environment quiets
down, everything will be given out.
http://web.archive.org/web/20040804095120/http:/cdbaby.net/fom/000004.html
• Mr. Strumpf says that he has always been candid with Mr. Liebowitz about
the impossibility of sharing the data Chronicle of Higher Education; July 17, 2008
“ This year, Mr. Strumpf told Handelsblatt that he and
Mr. Oberholzer-Gee had signed a confidentiality
agreement with their OpenNap source that prevented
the sharing of the data.” Chronicle of Higher Education; July 17, 2008
“Mr. Strumpf declined to show a copy to Handelsblatt
or to The Chronicle.” Chronicle of Higher Education; July 17, 2008
“An important question is whether our sample is
representative of data on all P2P networks…On the basis
of these tests, we conclude that our sample is
representative” (O/S, 2007, p. 7)
[O/S dataset]
2003 Share of
Share of World File- World Filesharing
Sharers (O/S
Users (OECD
2007, Table 2)
2004, p. 190)
Country
United States
30.9%
55.4%
Germany
13.5%
10.2%
Ratio US/Germany
2.29
5.43
“For example, in 2005 retail music sales rose in four of the
five largest national markets.” p 39, 2007.
T2: 2004-05 market changes
album
units
real retail
change
revenue
USA
-7.90%
-5.30%
Japan
3.02%
1.94%
UK
-0.82%
-5.46%
Germany
-3.60%
-1.56%
France
-5.24%
-4.24%
Canada
-5.33%
-4.32%
Australia
-4.30%
-12.33%
Italy
-4.84%
-1.73%
Spain
-8.71%
-8.47%
-13.10%
-18.27%
Netherlands
Moreover, it is difficult for musicians to earn substantial income
from recorded music sales, regardless of the success of their
album. This is in part due to the nature of recorded music
contracts (Passman, 2000).
• Passman doesn’t say this. If albums sells well
enough the musicians earn plenty of money.
• Passman does say that it is difficult for
moderately successful bands to do well.
“in the United States the entire drop in 2005
album sales is due to losses at a single firm, the
recently merged Sony-BMG, which has
experienced severe postmerger integration
difficulties.” P40, 2007.
Table 8: 2004-2005 Unit Sales Changes
UMG
SONYBMG
WMG
EMI
OTHERS
2.92%
-13.58%
-1.87%
-7.45%
-27.09%
“While album sales have generally fallen since 2000, the
number of albums being created has exploded…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.” P 23, O/S 2009
“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.”
• The age of “Vanity Albums”
• 97,000 new albums in 2009.
– 18,000 sold less than 1 copy
– 81,000 sold less than 100, generally much less.
• Only 19,000 were from the major labels.
• 4.3% of albums from majors sold more than
15,000 units for majors; .2% for indies.