A Tale Of Two Studies: File Sharing Helps Sales!

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

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.

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