This document summarizes key findings from several studies on the relationship between file sharing and music sales. The main points are: 1) Empirical research shows file sharing can either hurt or help music sales, with the majority of studies finding some negative effect, typically estimated around a 20% reduction in sales. 2) However, factors like concert revenue and complementary products like iPods have become major income sources, so the overall industry is in better financial shape when these are considered alongside recorded music sales. 3) One study found higher levels of pre-release file sharing did not significantly reduce album chart survival times, and may have even increased survival for more popular albums. The effect of sharing was found to be

1. File Sharing and
Copyright
OBERHOLZER-GEE, F.; STRUMPF, K
C A P. 2 , P. 1 9 - 5 5 . I N : L E R N E R , J . ; S T E R N , S . P. I N :
I N N O VAT I O N P O L I C Y A N D T H E E C O N O M Y. [ S . L . ] : N A T I O N A L
B U R E A U O F E C O N O M I C R E S E A R C H U N I V E R S I T Y O F
C H I C A G O , V. 1 0 , 2 0 1 0
Apresentação: Gustavo Viegas Rodrigues

2. File sharing technology x
industry sales decline
Empiric research shows that the effect could be
up to 20%
The matter of the artist motivation
From 2000 to 2009 music production more than
doubled, films rose by 30% and books by 66% (2002-7)
File sharing as an stimulus to sell more concert
tickets

3. File sharing and Copyright
“How much weaker the incentives to create
new works would be in a regime with more
constrained copyright?”
“How producers would respond to weaker
incentives. Would they offer fewer works or
perhaps works of lesser quality?”

4. Does file sharing harm sales?
Average iPod -> 3,500 songs*
64% of those songs -> never played!!!
Business Software Alliance -> 1 file
downloaded = 1 file not sold. Really?
What about complementing products
Mp3 music and iPods
* (Lamere, 2006)

5. A little History…
In the 20s, the music industry tried to block radio
set producers…
… and now they pay “jabá”
Also the entertainment industry reacted to the
creation of the VCR…
… but they probably didn´t complain against the DVD
player or Blu-Ray player because they learnt to make
money out of home-movies.
Now, there are ambiguous views about file sharing:
65% didn’t buy an album because they had downloaded
it;
But 80% said they’d bought an album because they’d
sampled it beforehand!

6. Key Events on File Sharing
The lawsuit disputes
Based on Sony Betamax
decision, P2P services had
a chance
Supreme Court ended up
overruling the lower
instance decision
RIAA decides to stop
suing in 2008! The idea
was to act on the
backstage with ISPs
And then, BitTorrent
came up

7. Data on File Sharing
File Sharing on Internet2*
Apr, 2010
* http://netflow.internet2.edu/

8. Consumer Behavior
Sample of ~10k songs
In a sample of ~10k
songs:
60% were never
downloaded in 17 weeks
81% were downloaded
less than 5 x
Global nature of file
sharing
Unless industry supports
the music launch,
downloads won’t pick up

9. Does file sharing reduce the
sale of copyright materials?
Theoretical modeling states that file sharing can
either hurt or help producers
Majority of empirical studies indicate that sharing
is harmful
Rates range from 3.5% in movies (Rob and Waldfogel,
2007) to 30% in music (Zentner, 2006).
A typical estimate is 20% of displacement
Even the papers that show some loss, it is usual to find
subsamples not affected
Challenges on the empirical literature
Choice of sample
Measures of piracy
Unobserved heterogeneity
Alternative – Instrumental variable techniques

10. How important are
complementary source of income?
Concerts and merchandising
have become an important
source of income
8.5 CDs to produce $20 of
concert revenue (pre-Napster)
vs. 6.4 CDs in 99-02
Concert prices rose above CPI

11. Not considering only CD sales,
the industry is in better shape
(07 vs. 97)
CD only = - 15%
CD + Concerts = + 5%
CD + Concerts + iPods = 66%
Does file sharing undermine
artistic production?
chance of successful launch is
< 1/100
Musicians get $1 or $2 per
album sold
Over ¾ of musicians have a
non-music related job
Album launches rising – other
media too
Does file sharing reduce the
sale of copyright materials?

12. Conclusions
Copyright exists to encourage innovation
Looking only to CD sales is too narrow – what
about the total income?
Empiric research is confuse
Papers using actual file sharing data suggest that
piracy and music sales are largely unrelated
The distribution of impacts of related sales
offsetting CD sales decrease is still
understudied

13. The Effect of Digital
Sharing Technologies
on Music
BHATTACHARJEE,S., GOPAL, R.D.,
LERTWACHARA, K., MARSDEN, J.R.,
TELANG, R.
Apresentação: Gustavo Viegas Rodrigues

14. Introduction
Is Music sharing harmful or helpful to the
music business?
Decline could be a result of both increasing
competition for consumer attention and downturn in
macroeconomic conditions
Problems of data collection on empirical work

15. The study
Study: top 100 songs on Billboard chart vs. songs’ downloads
on WinMx –
Before mid’98 and after mid’00,
Data collection pre and post that window (95 – 04)
3 time segments
Variables
Debut rank
Artist reputation
Record label
Artist descriptors
Study objectives
Assess impact of market technological developments on music sales
Evaluate impact of P2P sharing on album’s survival on the chart

16. “Does the level of sharing of
sharing influence survival time
on the charts?”

17. Related Literature
Nature of music as an experience good
Sampling and experiencing prior to purchase can
leverage sales
Number of albums released every year and
odds of success
Related to search costs of new artists
Learning process reinforce the trend to like popular
artists
Larger recording labels – larger support
“Bandwagon effect” – the more on top, the better

18. Modelling
Ordinary Least Squares (OLS) regression
One equation for album survival
Another for impact of sharing on survival
Authors decided to twitch the formula due to strong
correlation of sharing with unmeasurable data
Use of instruments to consider RIAA decision in Jun’03

19. Data
34 weeks
Each album was
tracked until its
drop-off the list
Start date of measurement:
Survival
Debut rank
Debut post-TS
Albums released
Superstar
Minor Label
Soloa Male
Solo Female
Group
Holiday_month Debut

20. Data set 1
14 to 10
weeks
49 to 40

21. Data set 2
Analysis is focused on sharing levels of each
album during its debut week
Two alternative measures of sharing:
Share_debut
Share_max

22. Album Survival
Results – without interaction
Each unit change
in rank on debut
adds 1.98% less
chance of survival
35% more
chance of
survival
23% less
chance of
survival
vs. major

23. Album survival
Results – with interactions
The effect on
survival gets more
dramatic as the
debut rank grows.

24. Analysis of sharing on survival
Results without instrument
It would seem that Shares_max leads to longer
survival

25. Analysis of sharing on survival
Results with instrument
When measure Feb-May vs. July-Oct survival
times, there was no significant difference
The RIAA announcement proved to be a highly
influential variant, confirming the results of 80%
less sharing after it came up
Debut rank again came significant
Sharing didn’t come significant (although
negative)

26. Analysis of sharing on survival
Results with instrument + 2
additional regressions
Coefficients on the regression instruments (RIAA
announcement indicator & RIAA announcement
indicator x debut ranks) are highly significant
Again top albums are not negatively affected by
sharing
The effect of sharing is more negative for
numerically higher ranked albums

27. Impact of sharing on survival
Higher survival for higher debut ranks
High = 5.12
Mid = 3.12
Low = 1.12
Mean survival time
High debut rank (>20) = from 2.92 to 4.7 weeks (!!!!!!)
Low debut rank (<=20) = from 13.11 to 13.65 weeks

28. Conclusions – 1/2
Debut rank impacts survival
Survival time drops 42% after controlling other
variables (although the above prevails)
Superstar’s albums survive 35% more on the
Top100
Female artists survive longer
Albums promoted by major labels survive longer

29. Conclusions – 2/2
There was a significant decrease on sharing after
the RIAA announcement
The estimated effect of sharing is worse for less
popular albums (lower on charts)
The research only considers tracking an album
when it reached the Top100. Sharing prior to that
could have an effect not considered

30. OBRIGADO!