Two researchers who previously believed that file-sharing had no impact on music sales have now changed their minds.

In a 2004 paper, Felix Oberholzer-Gee of Harvard Business School and Koleman Strumpf of UNC Chapel Hill (now at the University of Kansas) caused a stir by claiming file-sharing did not have a measurable effect on recorded music sales. In their new paper, however, they find that “no more than 20% of the recent decline in sales is due to sharing.” That happens to be roughly the same conclusion reached in a 2007 Capgemeni study commissioned by a UK music industry working group. In that study, Capgemini concluded that 18% of the value lost to the UK record industry from 2004 to 2007 was the result of digital piracy. The unbundling of the CD was found to be the main culprit behind the loss of value over that time period.

Oberholzer-Gee and Strumpf’s latest paper was unveiled a few weeks ago at a conference in Vienna. The Chronicle of Higher Education has a recap of the conference that describes the disagreements Oberholzer-Gee and Strumpf have with Professor Stan Liebowitz, whose research into P2P has concluded file-sharing has been detrimental to recorded music sales.

In spite of P2P’s erosion of copyright protection, the researchers say, has come an increase in new creations that has “benefited society” and which creators’ incentive to produce new works has not been undermined. “Data on the supply of new works are consistent with the argument that file sharing did not discourage authors and publishers,” they write. “Since the advent of file sharing, the production of music, books, and movies has increased sharply.”

Oberholzer-Gee and Strumpf used SoundScan figures to explain the increase in new music works. “In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published (Nielsen SoundScan, 2008).”

“Since 2000, the number of recordings produced has more than doubled,” they later concluded. “In our view, this makes it difficult to argue that weaker copyright protection has had a negative impact on artists’ incentives to be creative.”

It would be interesting to hear their thoughts on the drop in new musical creative works. After steadily rising for years, the number of new releases in 2009 dropped to 98,000 from 105,000 in 2008. Does that mean artists had less incentive to create in 2009? Or they may want to look at the other side of music copyright and consider what file-sharing has done to songwriters and the number of new compositions being written each year.

You see, Oberholzer-Gee and Strumpf should have replaced the word “produced” with “released in the U.S.” One should separate new creations from U.S. artists from all titles being sold in the U.S. market. For example, some new releases in a given year are reissues of old titles and foreign titles that take advantage of digital distribution and low-cost access to digital service providers. Both examples speak to the copyright owners’ incentive to monetize existing creations through digital distribution. They say nothing about the current incentive to create in the U.S.

In addition, the researchers should have done a better job at distinguishing between the effects of lower barriers to entry and file sharing. The former has brought new artists to market while the latter has discouraged some existing artists from creating more often. The researchers admitted as much when they pointed out that artists today have an incentive to spend more time touring as a result of lower recorded music revenues. More time spent touring means more time between albums – because there is less incentive to create new works rather than perform. However, for new artists who want to break into the market, lower barriers to entry should provide ample reason to create in the hopes of someday having the luxury of deciding between touring or more frequent recordings.

Those faults notwithstanding, the major thrust of Oberholzer-Gee and Strumpf’s paper rings true: file sharing can be blamed for part of recorded music revenue declines, that hasn’t eliminated artists’ incentive to create and consumers have benefitted from increased choice.

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