A Tale Of Two Studies: File Sharing Helps Sales!

from the the-other-side-of-the-coin dept

Fri, Mar 22nd 2013 6:32am — Mike Masnick

In the first part of this three part series, we talked about some research that suggested that the shutdown of Megaupload directly resulted in an increase in the sale and rental of digital movies. The study's authors used that to suggest that this proves that unauthorized download sites displace actual sales, and that there is likely a positive economic impact on copyright holders when properties like Megaupload are shutdown. However, as noted, another study that came out just after that one seemed to suggest something very different.

The second study, put out by the European Council, also is rather compelling, but argues something almost entirely contradictory: that there is no sign that infringement leads to a decrease in sales. In fact, it shows a very slight increase in sales. The researchers here were looking at a different market, however. They looked at digital music, and the impact of infringing downloads on authorized streams and downloads. The research found little impact:

Our results suggest that Internet users do not view illegal downloading as a substitute to legal digital music. Although positive and significant, our estimated elasticities are essentially zero: a 10% increase in clicks on illegal downloading websites leads to a 0.2% increase in clicks on legal purchases websites. Online music streaming services are found to have a somewhat larger (but still small) effect on the purchases of digital sound recordings, suggesting complementarities between these two modes of music consumption. According to our results, a 10% increase in clicks on legal streaming websites lead to up to a 0.7% increase in clicks on legal digital purchases websites. We find important cross country differences in these effects.

Going a bit further, they note:

Perhaps surprisingly, our results present no evidence of digital music sales displacement. While we find important cross country differences in the effects of downloading on music purchases, our findings suggest a rather small complementarity between these two music consumption channels. It seems that the majority of the music that is consumed illegally by the individuals in our sample would not have been purchased if illegal downloading websites were not available to them. The complementarity effect of online streaming is found to be somewhat larger, suggesting a stimulating effect of this activity on the sales of digital music.

Taken at face value, our findings indicate that digital music piracy does not displace legal music purchases in digital format. This means that although there is trespassing of private property rights (copyrights), there is unlikely to be much harm done on digital music revenues.

There are some significant similarities between the two different studies. Both go through the previous research into this issue and tend to cite almost all of the same papers (which is a good sign) to show what's been done before, and what the limitations are of that research. Both also focus on the question of online impact. That is, previous research has tended to focus on the impact on other modes of consumption: i.e., does downloading increase or decrease DVD purchasing, CD purchasing or movie theater sales. Both of these reports, however, look strictly at unauthorized downloading/streaming as compared to authorized downloading/streaming.

The specific methodologies differ somewhat, however. The MPAA paper compares overall sales/rentals vs. Megaupload penetration. The EC paper looks at direct clickstream traffic data as provided by Nielsen NetView, which collects direct data on exactly what sites people visit. The EC researchers, Luis Agular and Bertin Martens, then classified visits to different "music consumption" sites to see if they could isolate some sort of relationship between unauthorized streams and downloads and authorized ones. As with the MPAA study, there are some potential limitations there (mainly in sussing out the details of what people are actually doing on any particular page -- especially when some pages, such as Amazon.com, could result in other activity that is not music related), but the researchers do a good job trying to control for these limitations.

Also, it's good to see that in some cases the underlying data between the two studies agrees. Both, for example, show much greater usage of sites that have many unauthorized uses in Spain, for example. Unfortunately, other than Spain, France and Germany, the selection countries studied in the two reports is mostly different, so it's difficult to confirm other points between the two.

The EC study confirms another point that should be settled by now: those who use unauthorized sites are the biggest fans, by far.

The figures show that legal consumers (individuals that never clicked on an illegal music website during 2011) are, on average, active 2.5 months a year, while downloaders are active almost 6 months a year. Most interestingly, downloaders are also more active than legals both in terms of legal downloading (10% more clicks) and legal streaming (40% more clicks), as shown by their mean values of clicks. A positive relationship between legal and illegal consumption of digital music therefore emerges from this simple comparison of means. Comparing streamers and non- streamers (individuals that never clicked on a streaming music website during 2011) leads to similar conclusions. The figures show that streamers click more than twice as much on legal downloading websites, while their clicks on illegal downloading websites is 90% higher than for non-streamers. Again, this simple comparison of means shows a positive relationship between the different consumption channels and in particular between streaming and legal purchases.

Of course, as many will (rightfully) point out, this is just correlation data, which is useful, but not enough to prove any causal relationship. So the researchers go further. They use a number of variables try to separate out which users are most interested in music itself, by looking at whether they visit other music-related websites, such as music lyrics or music news sites, as well as other types of "music consumption" sites like video websites. Again, the data suggests a clear causal relationship.

Our results suggest that illegal downloading and legal streaming have both a positive and significant effect on legal purchases of digital music.

As you can see in the report, they continue to slice and dice the data a few different ways to test for other potential variables that might be creating this situation, and each time they fail to find any evidence of it. Instead, they see the same thing: engaging in unauthorized downloading appears to lead to more digital purchases, and the same for authorized streaming.

In the third piece in this series, we'll see if we can reconcile what appear to be very different findings in these two studies, as well as respond to the entertainment industry's freak out about this second study.

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Filed Under: european commission, file sharing, increased sales, music, sales, studies

35 Comments

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Zakida Paul (profile), 22 Mar 2013 @ 6:36am

Put together with the countless studies that the biggest illegal downloaders also spend more on legal content, I would be inclined to think this study has more merit.
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Anonymous Coward, 22 Mar 2013 @ 6:44am

I am more inclined to believe a study and report about music/movie sales and piracy by someone who is not connected to the music/movies and piracy then someone who is connected to music/movies and piracy ie MPAA or anyone funded by MPAA as they are more likely to fit their opinions to the way they want the study/report to find.
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Anonymous Coward, 22 Mar 2013 @ 6:51am

Re:
The couple that authored the study also refute that saying the great majority of studies says exactly what they are saying, that piracy "HARMS" companies, the use of the word "harm" is probably deliberate, he could have used "negative effect", "noted negative effect on the time frame studied", but they chose to say out loud "Conclusively and empirically we show that piracy HARMS companies".

One of them specifically says in their blog that people should look at the net not single facts and claims that the majority of studies says that piracy is bad and so it is.
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out_of_the_blue, 22 Mar 2013 @ 6:53am

APPLES AND ORANGES: Megaupload had thousands of MOVIES.
So you essentially couldn't fault the Megaupload study and ALL this shows is SLIGHT correlation between clicks and sales.

The empirical, legal, and moral cases for shutting down "file hosts" are now totally proven.

[May be that Pirate Mike is turning to his true opinions or just yielding to pressure of necessity. As I and at least one AC (yesterday) have commented: it's difficult to tell what his true position is. SO, my opinion is that from now on, Mike will come out increasingly pro-copyright, and that he's been shilling for Big Media all along. He is after all an obvious corporatist who "supports copyright"! -- In the prior piece, he said it'd be a nice tidbit if the study authors disclosed their funding, and I think it's high time we learn who funds Mike, too.]
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Anonymous Coward, 22 Mar 2013 @ 6:58am

Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
You can't 'prove' a moral case. That's literally impossible. For a moral argument to have any merit everyone has to stipulate to the same morals but they never do so it's impossible.
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Anonymous Coward, 22 Mar 2013 @ 7:02am

Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
No offense intended, but may I ask why you are always so angry (for the lack of a better word)?

It just seems to me that every post you write is so negative and argumentative.

It's just an observation, not a criticism. What's the back story here? I'm sure there is one...
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Zakida Paul (profile), 22 Mar 2013 @ 7:03am

Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
He isn't getting laid
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Anonymous Coward, 22 Mar 2013 @ 7:03am

Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
Well, you CAN. You'll just have to take it on faith that you can.
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Anonymous Coward, 22 Mar 2013 @ 7:07am

Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
He's a troll. And i'm not saying that in the 'dismiss the arguments I don't want to deal with' way I mean that in the traditional sense. He posts here intentionally to start shit and has confirmed this himself on more than one occasion.
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Anonymous Coward, 22 Mar 2013 @ 7:10am

Re: Re:
And the authors of the other study basically said the exact opposite, that theirs was the first proof of any such harm.
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Anonymous Coward, 22 Mar 2013 @ 7:13am

This study aligns with anecdotal experience, people listen to music before buying, and this allows them to find the music they like. The ratio of try to buy is also suggestive that they are searching within areas of music that match their tastes.
It is also worth noting that a not quite me reaction to an artist when just trying does not lead to not trying other works by the artist, where as if it buy and then listen. such an experience would tend to lead to them being ignored. for future buys.
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AB (profile), 22 Mar 2013 @ 7:39am

So the bottom line seems to be that the MAXIMUM possible effect of file sharing is a 10% loss, while the MINIMUM effect is a 0,7% gain. Clearly even the worst case scenario does not justify the degree of societal damage being inflicted by this battle.
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Spaceman Spiff (profile), 22 Mar 2013 @ 7:46am

Ah, statistics!
There are lies, damned lies, and then there are statistics... Never was there a truer observation than in relation to such "studies".
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PaulT (profile), 22 Mar 2013 @ 8:00am

Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
"Megaupload had thousands of MOVIES."

What does that have to do with the study, which is clearly stated as being a study of MUSIC, you ignorant asshole?
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PaulT (profile), 22 Mar 2013 @ 8:03am

Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
"it's difficult to tell what his true position is"

No, it's perfectly easy to tell what it is. It just doesn't fit with your fantasy world view.

"I think it's high time we learn who funds Mike, too."

You first. I'd like to know what - other than mental illness - would inspire you to lie like you do.
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Anonymous Coward, 22 Mar 2013 @ 8:05am

Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
And he'll disappear for a time. It's typical paid sockpuppet behavior.

The last time he was here, he dropped a lengthy, totally off-topic (to the article at least) and pre-prepared comment/rant. It was so off-topic, one commenter even questioned whether it had been pre-prepared. It was obvious that it had been because it was posted mere minutes after the article went up, was so long that it couldn't have been typed that quickly and had literally nothing to do with the article itself.

He then disappeared for a couple of months.

The best advice is to report his comments and move on.
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Anonymous Coward, 22 Mar 2013 @ 8:12am

Re: Ah, statistics!
"Statistics is like a miniskirt. It shows much but hides the most important."
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Anonymous Coward, 22 Mar 2013 @ 8:28am

Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
And to think this is the behaviour that average_joe wants protected. He and the other trolls claim that "censoring" posts like this is inhibiting the discussion.
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Anonymous Howard (profile), 22 Mar 2013 @ 8:37am

Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
Yet still people fill up comment space bashing his trolling
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Anonymous Coward, 22 Mar 2013 @ 8:40am

Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
I was just pondering the psychology of the internet troll, nothing more. Just trying to figure out what it is in their lives that make them so angry that the only way to dull the pain is to spread their misery to others. Do they not know how to express themselves in any other way? Do their actions generate a feeling of self worth (albeit a false one) to help with their low esteem?

Like I said, it was more out of curiosity than anything else. It's a little concerning to know that there are people out there like 'Out-of-the-blue' that just don't have the social skills to get along with others.

Do we blame it on poor education? Maybe. Perhaps poor parenting? Possibly. Who knows... maybe this person is just not right in the head and has does suffer from a mental disorder. I clearly see obsessive-compulsive behavior and possibly anti-authoritarian disorder. Mind you, this is just a cursory glance from an outsider who just happened to stumble into a fascinating little corner of the internet called Techdirt.

Anyhow, I feel as I've probably spent too much time on this subject matter already. In any case, I'll poke back in from time to time just to see how things are progressing.

Be safe, make good choices.
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Anonymous Howard (profile), 22 Mar 2013 @ 8:41am

Re:
This also true to videogames. You try it (demo/pirated version), and if you like it, you buy it.
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John Fenderson (profile), 22 Mar 2013 @ 8:44am

Re: Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
I was just pondering the psychology of the internet troll, nothing more

It's the same psychology of that of a playground bully. It's really no more complicated than that.
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Anonymous Coward, 22 Mar 2013 @ 9:10am

Re: Re: Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
When someone seems that detached from reality, I have to ask if they are real.

One way to make the opposition look bad, is to pretend to represent the opposition, but on the lunatic fringe. Hard to say if that's the case here, but it's possible.
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Anonymous Howard (profile), 22 Mar 2013 @ 9:10am

Re:
No, it said a 10% increase in file sharing leads to 0.7% increase in music purchases.
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Anonymous Howard (profile), 22 Mar 2013 @ 9:14am

Re: Re: Re: Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
If you look at the comments they get, you can quickly conclude that they're quite successful in what they're doing.

This presume some basic intelligence, or at least some guidance on what to say to provoke comments.

As for their motives, at the best, they're bored idiots. At worst, they're getting paid for it.
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Reality Check (profile), 22 Mar 2013 @ 10:09am

Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
You have a strange habit of taking a single sentence fragment or thought, expanding it to it's maximum level of absurdity, and then using it as the basis for a complete unified theory of rage and hostile self righteous vitriol.

I picture you sitting in the attic of the dirty run-down house with the overgrown lawn, in a nice neighborhood, plotting revenge on the neighbors who once had a party that kept you up late.
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AB (profile), 22 Mar 2013 @ 10:26am

Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
I do hope you aren't suggesting that these posts are not worth protecting simply because they don't make sense to you or me. They represent a very real opinion, regardless of how poorly it is presented, and that means the decision to 'censor' it would be based solely on the personal opinion of the person removing it.

Personally, I like the system here at TD which allows peer review to hide a post without actually deleting it completely.
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AB (profile), 22 Mar 2013 @ 10:31am

Re: Re:
I was referring to the MPAA study which claims a 10% loss in sales from file sharing.

Normally I would say the truth lies somewhere in the middle, but I actually think this study does represents that middle ground.
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Anonymous Coward, 22 Mar 2013 @ 11:24am

Re: Re: Re: Re: Re: APPLES AND ORANGES: Megaupload had thousands of MOVIES.
I don't think it's not worth "protecting"; I simply think it's hilarious that they're considered contributory, rational, sensible, reasonable, intelligent, coherent, etc. and that such a line of thought is actively encouraged.

Hell, if out_of_the_blue wants to keep making a fool of himself, he can go ahead; just don't expect his buddies to like it when their bluff gets called out thanks to him.
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Anonymous Coward, 22 Mar 2013 @ 12:13pm

Several things about this and the previously issued report:

This report is on a different time-period and does not include the mega closedown to any real effect so they are not showing different stories per se. But one of the main plusses in this report is the full year approach.

"Taking July as a reference, it seems that visits on legal purchase websites are higher from December to March, and lower from August to November. No signicant differences are noticed from April to June."

Or said in other words: In 2011 December to March is showing data suggesting more legal purchases than August to November! This is direct proof that the background curve in the other article is wrong since it doesn't take natural seasonal variations sufficiently into account because of their lack of periodic data!
This report is showing that the effect they claim is seen when mega was closed in january 2012 is the same effect found in this studys data a year before! That is actually quite significant! Any significant anti-piracy actions in december 2010 or january 2011?

This study has a longer period and thus has a better measure of the seasonal variable. It is worse in measuring legal activity, but far better at measuring illegal activity. Their sample is very comprehensive and they are far better at actually telling about all the limitations in the use of their results.
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John Q, 22 Mar 2013 @ 10:52pm

Re:
Actually, I thought that too. But I read the blog post of one of the authors of the megaupload study and it explains why seasonal variation isn't a factor given the methodology they used.

Made sense to me. Basically while you may be right.. clicks are higher in the after period.. this was explicitly accounted for by the methodology in the Megaupload study.

http://brettdanaher.wordpress.com/2013/03/13/explanation-of-megaupload-study-or-econometrics-101 /
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Anonymous Coward, 22 Mar 2013 @ 10:59pm

Hey Mike -

I don't know if you read comments on your posts.

I read the European Commission study and thought your summary was good. Except one part.

As you obviously recognize, people who like music more buy more music and pirate more music, which is why the authors don't consider the positive correlation between visits to filesharing sites and visits to legal buying sites to be causal.

As you noted, they try to control for this by adding some variables related to tastes for music (like visits to music blogs, song lyric sites, etc..).

When they add these variables, the very positive correlation becomes only slightly positive. And if you think about it, a person's true taste for music really can't be measured by something quantitative like # of visits to music blogs.

So there is a very simple problem in this study. The authors regress visits to legal sites on visits to pirate sites plus (controls for music tastes). But (controls for music tastes) is just some proxy that probably reflect some degree of music preferences but misses some of it. That means that the error term of their regression still includes some degree of the individuals' preferences for music.

In other words, what these authors are reporting is still a correlation that should not be interpreted causally... clearly there is still a bias in their regression that would cause their coefficient to be biased toward being positive.

If you think about it, the fact that it's only *slightly* positive despite having this upward bias means the true coefficient is probably somewhat negative. How negative? No one can say.
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PaulT (profile), 23 Mar 2013 @ 3:38am

Re:
I know what you're saying, but I think your conclusion is still a little off. If you control for musical taste, that means that the Sepultura fan who downloads a Kesha album to play at a party probably wouldn't have paid money for it. You can argue that he should have, but there's little chance he would have bought more than a single. Whatever disposable income he has would probably be spent on a metal gig or album rather than wasting it on some tunes some random bird at the party wanted to hear.

The problem with any study is that assumptions have to made about what people would have done if the pirated copy wasn't available. The pro-industry folk like to assume that they would buy at full retail price - which is utterly preposterous. This study tries to implement a more realistic idea of peoples' intentions, but the reality is that nobody can quantify it. However, to say that doubt about the study means that it actually trends negative is equally unfounded.
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special-interesting (profile), 23 Mar 2013 @ 12:46pm

About the two posts: They represent two very different viewpoints and what better way to try and sort out (a very reason for discussion) fact from opinion? My comment in the other post was to suspect any data gathered by the MPAA. What difference would a monopoly's measurement on sales or even profits be anyway? If I measured a boiling pot of water to be hot why would I be surprised?
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Anonymous Coward, 23 Mar 2013 @ 5:48pm

Re: Re:
Hey PaulT -

Thanks for the comment. I appreciate your viewpoint but I don't think you get the idea of regression analysis in this case (but you are really close). Please correct me if I am wrong.

You are right that the goal is to figure out how much more (or less) the person would have bought if they had not pirated (this is called the counterfactual). But regression analysis produces correlations, not counterfactuals. If the regression analysis is built around some sort of natural experiment that produced random variation in the X variable, it might be able to simulate the counterfactual.

If the authors regress (# purchases) on (# pirated downloads), the coefficient will be (and was) positive because people who like music do more of both. In other words, "taste for music" was in the error term of the regression but it was positively correlated with both X and Y, biasing the coefficient in a positive direction.

If you could perfectly control for "taste for music" with a variable that measures it, then the coefficient would be unbiased. But they have a measure that only proxies for taste for music and it's hard to imagine that it could possibly actually capture an exact measurement of a person's taste for music with their visits to music blogs or lyric sites.

When they include this control, the coefficient becomes only *slightly* positive. And yet there is still some yet unmeasured "taste for music" in the error term, positively correlated with X and Y. So the coefficient is biased toward the positive end.

Do we know that the true coefficient is negative? I agree, we don't. But the coefficient they find is just barely above zero, and yet there is still a decent amount of unobserved variable bias in the error term. That leads me to believe that if you were to actually control for this, the true coefficient would probably be negative. Am I 100% certain? Nope.

What the authors really need is some shock in the dataset that affected piracy of some individuals and not piracy of others, giving them an experiment that they can use to simulate the counteractual.

Sorry, this study just doesn't show much. By the way, I totally agree with you - clearly not all pirates would not buy at full retail price. The question is, how many pirated downloads equals 1 lost sale? This paper sales that pirated downloads actually boost sales, but based on the analysis above that finding holds little merit. The basic assumptions of OLS regression are clearly violated here.
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