Thursday, August 23, 2007

So there's another study...

...that says that music piracy is responsible for everything wrong with the country today (in particular: $12.5 billion and 71K jobs (pdf)), and it once again turns out that the people in charge of the study don't actually know the habits of P2P'ers (via Daily Swarm).

The study makes for some alarming reading, but it suffers from a few significant flaws. First and foremost, it appears to fall into the "illicit downloads == lost sales" fallacy, the view that each song obtained over a P2P network is a lost purchase. "Unfortunately, there is no precise measure of the degree to which consumers of pirated CDs would continue to purchase those CDs at legitimate prices," according to the study. "While the degree to which these legitimate purchases would occur differs by market, it appears nevertheless that such purchases would comprise a very significant fraction of the total number of pirated CDs now purchased... In this study, the weighted average substitution rate used for the physical piracy of recorded music is 65.7 percent. It is then assumed that only 20% (1 in 5) of these downloaded songs would have been purchased legitimately if piracy did not exist."

That's a bit better than the one-to-one argument, but not by much. It essentially assumes that one of every five downloaded songs would have been purchased, were it not for file-sharing. Although a 20 percent figure may not look like much, it is still a percentage not justified by our own knowledge of file-sharing trends. The study needs to make a firm argument for why this percentage is so high. It's a flaw similar to that in a 2006 study commissioned by the MPAA.

Note that the assumption cuts both ways. Not only does it assume many would-be sales, but it also ignores sales that do stem from file sharing. P2P users buy a lot of music, after all. Three out of four P2P users said that they bought music after downloading it online, with 21 percent of the respondents to the survey commissioned by the Canadian Record Industry Association saying that they have bought previously downloaded music on more than 10 occasions. So here again, we have data not being taken into account, data which would necessarily lower the study's estimates.

Another study even goes so far as to argue that the effect of file-sharing on legal music sales is "not statistically distinguishable from zero." Published this past February in the Journal of Political Economy, the study tracked the effects of 1.75 million song downloads on 680 albums. The researchers concluded that the availability—and even increased downloads—of music on P2P networks did not correlate to a negative effect on music sales. "Even our most negative point estimate implies that a one-standard-deviation increase in file sharing reduces an album's weekly sales by a mere 368 copies, an effect that is too small to be statistically distinguishable from zero," the study's authors reported.
I can't imagine the impact of file sharing is "not statistically distinguishable from zero"...I mean, maybe it is, but that seems a bit extreme--not even 10% as extreme as the claim that 71,000 jobs have been lost due to file sharing. All I know is, when I was doing the whole file sharing thing back in the day (haven't in a while), a) half of the stuff I downloaded was something I never would have considered buying (therefore there was no lost revenue), and b) if I downloaded something and liked what I heard, I was pretty likely to actually buy the albums I was sampling. That's how I discovered Ben Harper, David Gray, North Mississippi Allstars and others. The bands I liked made money off of me just like normal, only I wouldn't have discovered them if not for P2P services.

The music industry mightily resisted file sharing when it should have been adopting it...and they're STILL fighting this idiotic fight. Instead of embracing the situation and figuring out how to make money through the new technology, they whined and fought and, in the process, allowed the concept to take hold. I'm not going to pretend that file sharing could have been wonderful for the industry, and profits could have stayed exactly where they were in the N*SYNC days, but they made this as hard on themselves as possible, and it appears to have done irreparable damage.

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