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Downloading music from the Internet doesn’t kill CD sales after all, concludes a surprising new study by HBS associate professor Felix Oberholzer-Gee and Associate Professor Koleman Strumpf of the University of North Carolina at Chapel Hill. “The Effect of File Sharing on Record Sales” is the first study that directly compares actual downloads of music files with store sales of CDs, covering the last half of 2002.
“While downloads occurred on a vast scale during this period — 3 million simultaneous users shared 500 million files on the popular network FastTrack/KaZaA alone — most people who shared files appear to be individuals who would not have bought the albums that they downloaded.”
The study suggests that the music industry’s lawsuits against individuals who make files available for downloading may not have the desired effect on boosting CD sales. “Our analyses show that there is no relationship between the number of downloads of a particular album and sales of the album. Even in our most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy. If this worst-case scenario were true, file sharing would have reduced CD sales by 2 million copies in 2002. To provide a point of reference, CD sales actually declined by 139 million copies from 2000 to 2002.”
In fact, the study finds that downloads of the most popular CDs actually boost sales. “For the top 25 percent of albums (with sales of more than 600,000 copies), we find a positive effect: 150 downloads increase sales by one copy. This effect is particularly important because the profitability of the music industry depends almost entirely on the success of the most popular albums.”
Another surprise involved the origin of the files being downloaded. “Only 45 percent of the files downloaded in the United States come from computers in the United States. Sixteen percent of music files are downloaded from computers in Germany, 7 percent from Canada, 6 percent from Italy, 4 percent from the United Kingdom. A legal strategy that focuses mostly on the United States is unlikely to change the supply of music files.”
The full study is available as a PDF download at www.unc.edu/~cigar/papers/FileSharing_March2004.pdf.
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