March 11, 2011. The passage of the Digital Economy Act in England last year has resulted in a surge of articles that claim that the negative impact of illegal downloading of MP3’s on the record industry has been “debunked” and that, in fact, studies confirm the opposite, that there is no significant impact. I recently addressed one such claim on my blog in the article entitled 90% of All Statistics are Made Up on the Spot: Fact is, copyright infringement DOES kill jobs, which addressed an article by Rick Falkvinge. Matther Lasar of Ars Technica recently posted another article essentially making the same claim, entitled Did file-sharing cause recording industry collapse? Economists say no. Lasar’s article is based in large part on a research paper by Bart Cammaerts and Bingchun Meng of the London School of Economics and Political Science entitled Creative Destruction and Copyright Protection: Regulatory Responses to File-sharing..
In response to the DEA, one of the “key messages” of Cammaerts’ and Meng’s study is that common refrain that the decline in sales of CD’s cannot be attributed solely to illegal downloads of their digital equivalents. To be precise, here is their key finding:
Decline in the sales of physical copies of recorded music cannot be attributed solely to file-sharing, but should be explained by a combination of factors such as changing patterns in music consumption, decreasing disposable household incomes for leisure products and increasing sales of digital content through online platforms.
Does this not seem like a circular argument to anyone else that the conclusion that a decline in sales cannot be attributed by file-sharing, a significant change in how music is consumed, is supported by the assertion that it is better explained by a “combination of factors such as changing patterns in music consumption”? This conclusion by the “researchers” is based in significant measure, as are most of the conclusions in the report, on reports and studies done by others, including the long-since refuted study by Oberholzer-Gee and Stumpf conducted in 2004, entitled The Effect of File Sharing on Record Sales: An Empirical Analysis. Oberholzer-Gee and Stumpf erroneously concluded that the impact of illegal file-sharing on the music industry was, in their words, “null” but have since revised their conclusions and now argue that illegal file sharing is responsible for about 20% of the decline in the decline of revenue in the music industry. See File Sharing & Copyright 2010. It seems on the surface that the study is nothing more than rehash of old information. Based on review of these reports, Cammaerts and Meng concluded that “the claims by the music industry regarding the detrimental impact of infringing file-sharing on sales are flawed.”
The fact is all but a handful of the surveys related to the subject confirm illegal file-sharing reduces consumer spending on legitimate music, and confirm that the dramatic decrease in the sales of recorded music is caused by illegal file-sharing. See, e.g., Norbert Michael (The Impact of Digital File-Sharing on the Music Industry: An Empirical Analysis, 2006), Rob & Waldfogel (Piracy on the High C’s, 2006) and Alejandro Zenter (Measuring the Effect of File Sharing on Music Purchases, 2003). A 2006 study by Professor Stan Liebowitz, File-Sharing: Creative Destruction or Just Plain Destruction? concludes that all “. . . papers that have examined the impact of file-sharing . . . find some degree of relationship between file-sharing and sales of sound recordings.” Oddly, the only study that finds zero correlation is the Oberholzer and Strumpf study, which it has been frequently discredited.
The International Federation of the Phonographic Industry (“IFPI”) recently released the IFPI Digital Music Report 2010: Music how, when, where you want it reports what most economists and others who have studied the effect agree on: “Overall music sales fell by around 30 per cent between 2004 and 2009.” p. 6. The good news to be gained from the IFPI report is that overall sales of digital music increased to 27% of the industry’s revenue in 2010, a significant jump from almost zero in 2004.
All of this I say not really to fuel the flames of the the debate related to the cause of the decline in the music industry, but to point out that in the midst of all the studies, all the reports, and all of the conversation, there is one group of people whose voice is often not heard: the songwriter. I began this post with a quote from the incomparable singer-songwriter, Bono, who states flatly what is often overlooked: the people it hurts are the creators. If you read closely through the reports I have linked to in this article, you’ll find very little, if anything, about the impact of illegal file sharing on the songwriter. Yes, there a some vague references to “authors” and sometimes “creators,” but for the most part the researchers focus their impact on the more broad category of impact on the overall sales of recorded music. Very little attention is given to the trickle-down impact, i.e., how it affects the songwriter and the small music publishing companies that line the streets of Music Row here in Nashville. The only report of which I am aware which includes a significant sampling of songwriters is the one conducted by Mary Madden for the PEW Internet & American Life Project in 2004 entitled Artist, Musicians & the Internet. I won’t rehash all of the argument I made in 90% of All Statistics are Made Up on the Spot: Fact is, copyright infringement DOES kill jobs, except to say that most of these studies ignore the songwriter, on which the illegal downloading of songs has arguably made the greatest impact. Even back in 2004, when the study was conducted, 75% of the respondents (which included a pool of artists and musicians in addition to solely songwriters) stated that they held down a second non-songwriting-related job which was their primary source of income. I know for a fact that almost all of my songwriting clients hold second jobs, which prevents them from creating music. The decline in these songwriter’s revenue is a direct result of the loss of mechanical royalties resulting from the massive decline in sales of physical product, not to mention a decline in performance royalties as a result of fewer artist being played on the radio, which is a result of fewer record labels investing in the career of new and developing artists.
This brings me to my last, and perhaps the most disturbing, observation raised by the new IFPI report. The report states that
Illegal file-sharing has also had a very significant, and sometimes disastrous, impact on investment in artists and local repertoire. With their revenues eroded by piracy, music companies have far less to plough back into local artist development. . . .
The impact of declining revenues and illegal file-sharing on the availability of venture capital is another factor that is rarely if ever considered by many of the so-called reports on the decline in this “lost decade” of the music industry. Why would any entity risk investing hundreds of thousands of dollars in a new artist when there is no perceivable source of revenue from which to gain a return on investment? The answer is that they do not. The impact of the Internet on the creative industry does not stop at the music industry. Other industries that are starting to feel the impact of lost revenues are the movie industry, the television industry, the print publishing industry and the fashion industry. Anywhere that creative endeavors are conducted for profit, the profits are being diminished in one form or another by the impact of P2P file-sharing. My wife has a saying about people who live together when they are not married: “Why buy the cow when you can get the milk for free?” This also applies in the creative industries: people do not generally pay for that which they can get for free.
The chief executive of Kudos, Stephen Garrett, said it best perhaps:
We are in danger of creating a world where nothing appears to have any value at all, and the things that we make…will become scarce or disappearing commodities.
I hope that danger does not become a reality. Being deprived of the talents of, say, a Don Henley or a Bono, simply because we are unwilling to shell out a buck for a mp3, would, in my humble opinion be a real shame.