|FROM ||Michael Richardson
|SUBJECT ||Subject: [hangout] FW: [DMCA_Discuss] A Heretical View of File Sharing (fwd)
"In The Business World
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> -----Original Message-----
> From: Mike Richardson - NYLXS PRESIDENT [mailto:miker-at-mrbrklyn.com]
> Sent: Monday, April 05, 2004 8:27 PM
> To: mrichardson-at-abc.state.ny.us
> Subject: [DMCA_Discuss] A Heretical View of File Sharing (fwd)
> ---------- Forwarded message ----------
> Date: Mon, 5 Apr 2004 10:21:53 -0700
> From: Jon O.
> To: dmca_discuss-at-lists.microshaft.org
> Subject: [DMCA_Discuss] A Heretical View of File Sharing
> ----- Forwarded message from Dave Farber -----
> A Heretical View of File Sharing
> April 5, 2004
> By JOHN SCHWARTZ
> The music industry says it repeatedly, with passion and
> conviction: downloading hurts sales.
> That statement is at the heart of the war on file sharing,
> both of music and movies, and underpins lawsuits against
> thousands of music fans, as well as legislation approved
> last week by a House Judiciary subcommittee that would
> create federal penalties for using what is known as
> peer-to-peer technology to download copyrighted works. It
> is also part of the reason that the Justice Department
> introduced an intellectual-property task force last week
> that plans to step up criminal prosecutions of copyright
> But what if the industry is wrong, and file sharing is not
> hurting record sales?
> It might seem counterintuitive, but that is the conclusion
> reached by two economists who released a draft last week of
> the first study that makes a rigorous economic comparison
> of directly observed activity on file-sharing networks and
> music buying.
> "Downloads have an effect on sales which is statistically
> indistinguishable from zero, despite rather precise
> estimates," write its authors, Felix Oberholzer-Gee of the
> Harvard Business School and Koleman S. Strumpf of the
> University of North Carolina at Chapel Hill.
> The industry has reacted with the kind of flustered
> consternation that the White House might display if Richard
> A. Clarke showed up at a Rose Garden tea party. Last week,
> the Recording Industry Association of America sent out
> three versions of a six-page response to the study.
> The problem with the industry view, Professors
> Oberholzer-Gee and Strumpf say, is that it is not supported
> by solid evidence. Previous studies have failed because
> they tend to depend on surveys, and the authors contend
> that surveys of illegal activity are not trustworthy.
> "Those who agree to have their Internet behavior discussed
> or monitored are unlikely to be representative of all
> Internet users," the authors wrote.
> Instead, they analyzed the direct data of music downloaders
> over a 17-week period in the fall of 2002, and compared
> that activity with actual music purchases during that time.
> Using complex mathematical formulas, they determined that
> spikes in downloading had almost no discernible effect on
> sales. Even under their worst-case example, "it would take
> 5,000 downloads to reduce the sales of an album by one
> copy," they wrote. "After annualizing, this would imply a
> yearly sales loss of two million albums, which is virtually
> rounding error" given that 803 million records were sold in
> 2002. Sales dropped by 139 million albums from 2000 to
> "While downloads occur on a vast scale, most users are
> likely individuals who would not have bought the album even
> in the absence of file sharing," the professors wrote.
> In an interview, Professor Oberholzer-Gee said that
> previous research assumed that every download could be
> thought of as a lost sale. In fact, he said, most
> downloaders were drawn to free music and were unlikely to
> spend $18 on a CD.
> "Say I offer you a free flight to Florida," he asks. "How
> likely is it that you will go to Florida? It is very
> likely, because the price is free." If there were no free
> ticket, that trip to Florida would be much less likely, he
> said. Similarly, free music might draw all kinds of people,
> but "it doesn't mean that these people would buy CD's at
> $18," he said.
> The most popular albums bought are also the most popular
> downloads, so the researchers looked for anomalous rises in
> downloading activity that they might compare to sales
> activity. They found one such spike, Professor
> Oberholzer-Gee said, during a German school holiday that
> occurred during the time they studied. Germany is second to
> the United States in making files available for
> downloading, supplying about 15 percent of online music
> files, he said. During the vacation, students who were home
> with time on their hands flooded the Internet with new
> files, which in turn spurred new downloading activity. The
> researchers then looked for any possible impact in the
> subsequent weeks on sales of CD's.
> Professor Oberholzer said that he had expected to find that
> downloading resulted in some harm to the industry, and was
> startled when he first ran the numbers in the spring of
> 2003. "I called Koleman and said, 'Something is not quite
> right - there seems to be no effect between file sharing
> and sales.' "
> Amy Weiss, an industry spokeswoman, expressed incredulity
> at what she deemed an "incomprehensible" study, and she
> ridiculed the notion that a relatively small sample of
> downloads could shed light on the universe of activity.
> The industry response, titled "Downloading Hurts Sales,"
> concludes: "If file sharing has no negative impact on the
> purchasing patterns of the top selling records, how do you
> account for the fact that, according to SoundScan, the
> decrease of Top 10 selling albums in each of the last four
> years is: 2000, 60 million units; 2001, 40 million units;
> 2002, 34 million units; 2003, 33 million units?"
> Critics of the industry's stance have long suggested that
> other factors might be contributing to the drop in sales,
> including a slow economy, fewer new releases and a
> consolidation of radio networks that has resulted in less
> variety on the airwaves. Some market experts have also
> suggested that record sales in the 1990's might have been
> abnormally high as people bought CD's to replace their
> vinyl record collections.
> "The single-bullet theory employed by the R.I.A.A. has
> always been considered by anyone with even a modicum of
> economic knowledge to be pretty ambitious as spin," said
> Joe Fleischer, the head of sales and marketing for
> BigChampagne, a company that tracks music downloads and is
> used by some record companies to measure the popularity of
> songs for marketing purposes.
> The industry response stresses that the new study has not
> gone through the process of peer review. But the response
> cites refuting statistics and analysis, much of it prepared
> by market research consultants, that also have not gone
> through peer review.
> One consultant, Russ Crupnick, vice president of the NPD
> Group, called the report "absolutely astounding." Asked to
> explain how the professors' analysis might be mistaken, he
> said he was still trying to understand the complex
> document: "I am not the level of mathematician that the
> professors purport to be."
> Stan Liebowitz of the University of Texas at Dallas, author
> of an essay cited by the industry, said the use of a German
> holiday to judge American behavior was strained. Professor
> Liebowitz argued in a paper in 2002 that file sharing did
> not affect music sales, but said he had since changed his
> The Liebowitz essay appeared in an economics journal edited
> by Gary D. Libecap, a professor of economics at the
> University of Arizona, who said that his publication was
> not peer reviewed, though the articles in it were often
> based on peer-reviewed work. Professor Libecap said he
> attended a presentation by Professor Strumpf last week, and
> said the file-sharing study "looks really good to me."
> "This was really careful, empirical work," Professor
> Libecap said.
> The author of another report recommended by the industry
> said that the two sets of data used by the researchers
> should not be compared. "They can't get to that using the
> two sets of data they are using - they aren't tracking
> individual behavior," said Jayne Charneski, formerly of
> Edison Media Research, who prepared a report last June that
> she said showed that 7 percent of the marketplace consists
> of people who download music and do not buy it. That number
> is far lower than the authors of the new study estimated.
> "There's a lot of research out there that's conducted with
> an agenda in mind," said Ms. Charneski, now the head of
> research for the record label EMI.
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