Study: File Sharing Leads To More, Not Fewer, Musical Hits Being Written

from the more-research-needed dept

As Techdirt has noted many times, much of the debate around filesharing is driven by dogma rather than data. That's beginning to change, although there has been a natural tendency to concentrate on economic issues: that is, whether filesharing causes sales of music and films to drop or not. But copyright is not fundamentally about making money: it's about encouraging creativity. So arguably a more important question to ask is: does filesharing harm or help creativity? That's precisely what an interesting new paper entitiled "Empirical Copyright: A Case Study of File Sharing and Music Output," written by Glynn S. Lunney, Professor of Law at the Tulane University School of Law in New Orleans, seeks to explore (found via TorrentFreak.) Here's the background:

From a utilitarian perspective, devising an optimal copyright regime requires a simple balancing of copyright's benefits against its costs in order to maximize the resulting social welfare. While simple in theory, this balance has proven surprisingly difficult to achieve in practice. In part, this difficulty arises because the data available is inevitably limited, and often observational, and so the conclusions are fraught with ambiguity and uncertainty. In part, it arises because there are vested political interests that do not want an optimal copyright regime. Rather, they seek a copyright regime that maximizes their own welfare, whatever that may be. As a result, whatever data is available, and whatever uncertainty or ambiguity remains, they will twist in order to ensure that copyright serves them, rather than society as a whole. Whether due to the first problem or the second, there are also surprisingly few empirical studies of the costs and benefits associated with broadening or narrowing copyright. This study aims to help fill that gap by examining how file sharing has affected the creation and dissemination of new original music.

As Lunney notes, filesharing is a "natural experiment in radically reduced copyright protection," and offers us the chance to explore whether that results in reduced creative output too, as maximalists like to claim. With the assumption that filesharing does cause a fall in revenue for artists (which may not, in fact, be true), there are two effects that need to be considered:

The first is familiar: Lower returns for creating music will lead to fewer new authors and artists, as lower returns lead individuals to devote their talents elsewhere in the economy. The second may be less familiar, but is no less real: Lower returns for any given work means that those individuals who do become authors or artists will, on average, each create more works.

The second of those may seem counter-intuitive, but is well established in economic theory:

when wages are low, an initial wage increase leads individuals to devote more time to working, as the higher wage leads individuals to substitute work for leisure (the "substitution" effect). As wages continue to rise, however, higher wages generate higher income, which leads in turn to increased demand for a variety of goods including leisure (the "income" effect). Once wages increase to the point where the desire for leisure from the income effect outweighs the desire for work from the substitution effect, further wage increases actually lead to less time spent on work. Economists refer to this as the backward-bending labor supply curve.

Here's how that works out in the context of strengthening copyright:

Economic theory thus suggests that we should expect broader copyright to lead to more works from having more new authors, but at the potential cost of fewer works from our most popular existing authors. Narrowing copyright, on the other hand, whether through a formal statutory amendment or through an informal technological development such as the rise of file sharing, should have the opposite effect: fewer works from having fewer new authors or artists entering the field, but more works from our most popular existing authors.

Whether file sharing will lead to more or fewer works, on balance, then, depends on the relative magnitude of these two marginal effects.

The rest of the paper explains how Lunney went about gathering data to explore that balance, and the statistical analyses he applied. Here's what he found:

While the sharp decline in revenue that paralleled the rise of file sharing is associated with a decrease in the number of new artists in the study's sample of the top fifty each year, ceteris paribus, it is also associated with an increase in the average number of hits by each new artist who does make it, ceteris paribus. Moreover, because the latter effect outweighed the former, the decline in revenue since file sharing began was not associated with any decline in music output. To the contrary, the decline in revenue was associated with an increase in the number of new hit songs that appeared annually in the study's sample of the top fifty, ceteris paribus.

This study therefore concludes that file sharing has not reduced the creation of new original music. It may have led to fewer works as a result of fewer new artists entering the field, but it was also associated with an increase in output by those artists who chose, despite the lower returns, to devote their talents to making music. Given that file sharing undeniably promotes the broad dissemination of existing works, this conclusion suggests that file sharing is both fully consonant with copyright's constitutionally-delimited purposes and welfare enhancing. While the study has limitations, particularly those associated with the use of observational data generally, it nonetheless suggests that file sharing is not, for the music industry, at least, the problem that the copyright industries have claimed.

Fans of strong copyright enforcement will be uncomfortable with that result, and will doubtless find details of the author's methodology to criticize. Lunney himself is aware of its limitations:

While the data represents the longest and most detailed study of file sharing's impact on music output that I have seen, it still covers only twenty-nine years and one country.

More research on what has happened elsewhere around the world would of course be welcome. But the study is in any case valuable for highlighting that heated arguments about the effects of filesharing on the sales and profits of the copyright industries miss the point: ultimately what matters is the impact, if any, on creativity.

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Filed Under: file sharing, glynn lunney, hits, music

Copyright: The New Mercantilism

from the it's-a-protectionist-monopoly-law dept

We've argued for a while that copyright is frequently used as a new form of mercantilism, the mostly discredited economic theory that basically said that the government should be heavily involved in "protecting" local industries with monopolies and tariffs. Adam Smith's seminal works, which more or less created the field of economics were really, in part, a critique of mercantilism, and how it could cause more economic harm than good. When you take a wider view of copyright law and policy (especially in international trade), it's not difficult to conclude that it's very similar to classic 17th century mercantilism.

So it's interesting to see Tulane professor Glynn Lunney publish a paper arguing exactly this: that copyright has become a mercantilist tool, and that's a problem.

Over the last twenty years, arguments for broader copyright have taken an increasingly mercantilist turn. Rather than argue for broader copyright in terms of more or better original works, proponents have begun arguing for broader copyright on the basis of revenue and jobs. Consumer copying is theft or piracy, proponents insist, depriving copyright owners of revenue and destroying jobs. In this article, I review these arguments and show that they are empty. While the Internet and digital technology has made widespread consumer copying a reality, broader copyright can be justified only if this copying has interfered with the creation and dissemination of new original works. But it has not. Using a hand-coded data set examining the number of new artists and cover songs in the top fifty of the Billboard Hot 100 chart in the first week of each month for the years 1990-2010, I show that while music industry revenue has fallen sharply since Napster opened its virtual doors, output in the music industry, both in terms of quantity and quality, has increased just as sharply. Part of the explanation for this seemingly paradoxical result, is that the digital revolution, while it has made consumer copying trivially easily, has also reduced costs, risks, and barriers to entry in the music industry. Yet, this cannot be a complete explanation.

To account for the rest, I offer a theoretical model and a simple explanation for why the incentives for music creation have remained sufficient in the face of widespread consumer copying: Consumers don't just love music generally; they love their particular favorite artists and their specific favorite songs. While consumers would like to get music for free, they know that they have to support their favorite artists in order to get and to continue getting the music they want. As a result, self-interest tends to ensure that consumers do not free ride too much. While the resulting market is unlikely to be perfect, legislation from Congress is not likely to improve the situation. Just as product markets fail in predictable circumstances, so too do political markets. When, as in the debate over broader copyright, proposed legislation benefits a concentrated interest group, such as copyright owners, at the expense of a dispersed interest group, such as copyright consumers, Congress is systematically likely to get the answer of how much copyright is optimal wrong, and badly wrong at that. In short, we have far more to fear from government intervention in the markets for original works than we do from leaving these markets alone.

I met Lunney a few months ago, and saw him present some of this research at a conference, and he makes a really compelling case (I had a minor disagreement with him over some of his data, but the overall work is really, really solid). The full paper is totally worth reading. As I read through it, I kept thinking I wanted to quote basically everything, so instead I'll just repeat: go read the full paper. I will include this bit from near the end, however:

While I recognize the political difficulty, and perhaps futility, of proposing a constitutional amendment limiting Congress's power in this area, I think it is time, and past time, to put such options on the table. It has been over two hundred years since our Constitution was written, and we have a much better sense today for where representative democracy works and where it fails. Because copyright benefits a concentrated and well-organized interest group at the expense of a dispersed group, establishing an optimal copyright regime is simply not something Congress has done or will do well. We should therefore limit Congress's power to act on this issue. At the simplest, such a constitutional amendment might follow Jefferson's suggestion and substitute "for no more than fourteen years" for the phrase "for limited times" in Article I, section 8, clause 8. Taking it a step further, an amendment might specify or limit the nature of the "exclusive rights" that Congress may grant. I fully recognize that such an approach would enshrine a set of rights that, even if optimal today, may not prove optimal for all time. Such an approach would almost certainly impose a set of legal rights that will not fit perfectly the needs of the future, as technology and markets change. Nevertheless, I believe that such an approach remains preferable to our current approach. Any welfare losses that may result from constitutionalizing today's optimal set of rights and imposing those rights onto the future would be less than the welfare losses that will result, and have resulted, from leaving the issue to Congress. Given how overbroad copyright has become, even an amendment barring Congress (and the states as well) from granting exclusive rights to authors for their writings altogether would be better than where we find ourselves today.

Once again, go read the whole thing... and remember the key points he raises the next time you see copyright maximalists bring up how many "jobs are at stake." That's a bogus claim, as Lunney notes elsewhere in the paper:

for the copyright industries to receive more revenue, consumers must pay more for works of authorship. Broader copyright, after all, does not generate revenue from thin air. It has to come from somewhere. If consumers have to pay more for works of authorship, they will have less to spend on everything else. Thus, more revenue for the copyright industries necessarily means less revenue for other sectors of the economy. If more revenue for copyrighted works means more jobs for the copyright industries, presumably less revenue everywhere else means fewer jobs elsewhere in the economy

Copyright is about Congress picking winners and losers in a true mercantilist manner -- and Congress has proven especially bad at doing that well -- in part because they only seem to listen to the claims of the industry which benefits from such policies.

Filed Under: copyright, economics, glynn lunney, mercantilism, protectionism