Stan Liebowitz, a professor of economics at the University of Texas at Dallas, has submitted a rebuttal expert report in the Joel Tenenbaum file sharing case (made available by the Campaigns & Copyrights blog). His report was brought in to contradict an expert report for the defense by Dr. J.A. Pouwlese on the financial impact of P2P downloading and other topics.
In short, Liebowitz argues that file sharing hurts sales of recorded music. Further, he argues weakening of property rights, not failure of business models, is behind the decline in recorded music sales. Here is a key excerpt from the report:
The reason that the sound recording industry is in such dire straits is that the property rights over the product that they sell has been diluted or eliminated due to new technologies which rely on the Internet, i.e., file-sharing. File-sharing of copyrighted works, which is what I will mean when I talk about file-sharing, is an outgrowth of the Internet's impinging on the ability to enforce legal protection of property rights for digital products. Because many users of file-sharing systems can enjoy sound recordings without the need to purchase them, sales of sound recordings have fallen. ...
Critics of the sound recording industry suggest that it should change business models and stop trying to sell sound recordings. Instead, these critics suggest, the sound recording industry should try to generate revenues from giving away music and focusing on revenues with more secure property rights: selling advertising, selling merchandise such as t-shirts, or switching to live concerts as a form of revenue generation.
It is always possible to change one's line of business, but when someone is forced to do so because property rights in their product are deteriorating, the forced change in business models indicates that the entity changing models has been harmed.
Liebowitz used baseball to illustrate the importance of paying content creators. "Many college and high school players play for nothing," he wrote, "perhaps in the hopes of someday becoming a major leaguer. Does this mean that baseball players do not have to be paid, that they would all be happy to play for nothing?"
Baseball's parallel to music can be seen in the number of amateurs who would like to become stars. "Professional sound recordings require producers, studios, and often the accompaniment of professional studio musicians or even an orchestra (and orchestrator)," he pointed out. "And the public needs to be alerted to the existence of the sound recordings. All of this takes money."
Those amateurs are flooding the Internet, Liebowitz argued, with demos that were also made prior to the existence of the Internet. If payments for sound recordings decrease, there will be fewer "professional quality" sound recordings produced.
The implication - and it is a tricky ,controversial one - is the public does not want amateur recordings and society is better off with more professional sound recordings. Some would argue that an increase in less-than-professional quality recordings is a good thing and that market niches are being better served by an increase in titles released. In addition, Liebowitz's baseball logic implies the professional quality recordings are worse off than in years past. While they sell fewer units, they account for roughly the same percent of total sales. In
other words, everybody is worse off, not just the professional quality productions.
Liebowitz did not mention the substitution of tracks for albums as one of the reasons for the drop in both album sales and overall recorded music revenues. Nor does he venture into adoption of streaming services, something that may reduce purchases but has yet to be adequately studied in an academic paper.