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P2P No Showstopper for Music Sales

P2P No Showstopper for Music Sales

Yankee Group senior analyst Mike Goodman told TechNewsWorld that the Harvard/UNC findings "match right along with what we say: The bulk of revenue declines by the recording industry have been self-induced." He said the main reason for the record industry's recent revenue decline is that fewer albums are being produced and sold.

By Jay Lyman
03/30/04 10:38 AM PT

Contrary to claims made by the Recording Industry Association of America (RIAA), which has launched a campaign of lawsuits against peer-to-peer (P2P) network users and blamed them for plunging sales, unlicensed downloading and Internet file-sharing of copyrighted music has no effect on CD sales, according to researchers at Harvard Business School and the University of North Carolina, Chapel Hill.

The researchers said that although more than 60 million Americans over age 12 have downloaded music and there are more than a billion downloads each week, the popular online activity is not the music-industry scourge the record companies contend it is.

"Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates," the report said. "Moreover, these estimates are of moderate economic significance and are inconsistent with claims that filesharing is the primary reason for the recent decline in music sales."

Positive Effect

Based on its online survey of P2P users, the Harvard and UNC researchers indicated that while some users do not purchase albums because free file-sharing is an option, even more users have purchased albums after sampling music through a P2P utility or site.

"While 65 percent of users say downloading led them to not purchase an album, 80 percent claim they bought at least one album after first sampling it on a filesharing network," researchers wrote. "The net effect is reported to be positive."

Researchers, who also observed actual P2P use, added that since some 5,000 downloads would be required to displace a single album sale, the effect of file-sharing is insignificant and indistinguishable from zero.

The study also showed file-sharing has a differential impact across sales categories -- meaning that high-selling albums actually benefit from file-sharing.

"While downloads occur on a vast scale, most users are likely individuals who would not have bought the album even in the absence of filesharing," the report added.

RIAA Position

In response to the report's findings, RIAA spokesperson Jonathan Lamy told TechNewsWorld that "a whole slew" of other studies show file-sharing is a major contributor to declining album sales.

"We're still reviewing [the research], but we can point to countless other studies that reach a different conclusion," Lamy said.

The Harvard and UNC researchers, however, argued that at the most, filesharing can explain only "a tiny fraction" of the music industry's decline.

"This result is plausible given that movies, software and video games are actively downloaded, and yet these industries have continued to grow since the advent of filesharing," the report concluded.

P2P Position

The report's rebuttal of the RIAA's cries of injury were welcomed by P2P companies and executives, who previously have argued that instead of hindering sales of entertainment media, P2P can be leveraged to increase such revenue.

"We welcome sound research into the developing peer-to-peer industry, and this study appears to have covered some interesting ground," said Nikki Hemming, CEO of Kazaa maker Sharman Networks.

Hemming added that the study highlights what might be possible if the RIAA were more willing to work with P2P companies to legitimize the currently unlicensed model of distributing and sharing music.

"We've offered content providers the opportunity to work with peer-to-peer customers for nearly two years, yet the record industry continues its narrow-minded strategy of litigation and legislation," Hemming said.

Fewer Songs To Sell

Even as the most recent findings were debated, the RIAA announced its support for a new round of international lawsuits -- the first of their kind -- launched by record industry associations in four countries over alleged illegal file-sharing.

Yankee Group senior analyst Mike Goodman, who has criticized the idea of filing lawsuits against individual users who are members of the very audience the RIAA and other industry groups are serving, said the Harvard/UNC findings "match right along with what we say: The bulk of revenue declines by the recording industry have been self-induced."

Echoing points made by the researchers, Goodman told TechNewsWorld that the main reason for the record industry's recent revenue decline is that fewer albums are being produced and sold.

"In reality, the more important metric is not gross receipts, but profitability and what is the per-album profit," he said.

The analyst added that the industry's strategy to cut the production and expenses of less-successful albums is a smart one, but he criticized the industry for being disingenuous when portraying its declines as a result of free file-sharing.

"If you cut the number of albums, you're cutting sales," Goodman said.


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