p2pnet news | P2P:- File-sharing not only doesn’t lead to a drop in CD sales, it might even encourage downloaders to buy more CDs.

That was the conclusion of a study by Birgitte Andersen and Marion Frenz for Industry Canada.

It didn’t surprise downloaders, P2P proponents, file sharers or anyone with any knowledge of the online music community who’ve been saying exactly the same thing for years.

But it seriously upset Stan Liebowitz (right), Ashbel Smith Professor of Economics at the University of Texas at Dallas who also found serious fault with the now famous study by Felix Oberholzer of the Harvard Business School and Koleman Strumpf of the University of North Carolina.

“The results of their March 2004 paper actually indicated that file-sharing has a substantial positive impact on record sales,” says Liebowitz, but in his view, “the paper by Oberholzer-Gee and Strumpf contains numerous factual errors, poorly performed empirical tests, and errors in logic”.

Of the Canadian study, he states:

My initial criticism was too harsh regarding the simultaneity bias because the authors (A/F) attempt to control it but they do so only partially so that some bias is likely to remain. Nor do the authors acknowledge that the results of the survey are likely to be biased in a particular direction. The single biggest problem with the report is that the authors present two sets of results, one for the entire sample and one just for downloaders. It makes little or no sense to look only at downloaders and when they do so the authors find a result that is not only implausible but is actually is impossible to be true, given their data. When the appropriate full sample is used the results are still likely to be biased upward because the authors do not fully account for the impact of music interest, which impacts both downloading and purchasing. There are other less important issues, such as the regression specification and the construction of some variables …

And the Guardian Unlimited’s Jack Schofield supports Liebowitz, saying:

Liebowitz points out that it’s a mistake to draw conclusions only from file-sharers and puts in some simple numbers to show why. In layman’s terms (ie mine, not Liebowitz’s), heavy file-sharers buy more CDs because they are more interested in music. People who don’t care as much about music (which is most people) do less file-sharing, and they also buy fewer CDs.

It’s not cause and effect. As Liebowitz says: “the results are entirely determined by the simultaneity of degree of music interest and music consumption, whether purchased or downloaded.”

Says Mathew Ingram in the Globe & Mail:

Liebowitz says that his own research, including a recent paper to be published in the journal Management Science, shows that “file-sharing is responsible for the entire decline in record sales that has occurred, and that except for file-sharing there would have been an increase in sales since 1999 instead of the strong decline.”

Although the professor admits he is “partial to my own work,” he humbly describes it as “the strongest analysis to date of these issues.” (Other research — including some based on numbers from the music industry itself — has come to different conclusions).

And what about the 2004 study by Felix Oberholzer-Gee of the Harvard Business School and University of North Carolina economist Koleman Strumpf? They came to almost the exact same conclusion as the Industry Canada study — that is, they found the effect of downloading on CD sales was “statistically indistinguishable from zero.” A PDF of the study is here, and there’s a good overview of some of the implications of the study here.

Prof. Liebowitz says that the Oberholzer-Strumpf study’s research methods were also flawed, and that like the University of London researchers they failed to come up with any alternative explanation for why CD sales had dropped so precipitously over the past few years.

The professor might like to think that the matter is settled by his own illustrious research, but there are questions raised by his approach as well. For example, Liebowitz (who refers to “record sales” throughout his research, making it unclear whether he is talking about CDs or not) doesn’t say whether he is including the number of paid-for iTunes downloads when he looks at the decline in music sales over the past decade. Does his research include the sale of CD singles? Ringtunes? That’s unclear.

It’s also not clear whether the professor is talking about sales in dollar terms or the number of actual units that have been sold — since the price of CDs has come down over the past several years, and that has reduced revenues but not the number of units.

It’s natural to assume that downloading music would lead to fewer sales of CDs. But is it solely responsible for the decline in sales over the past decade, or are there other factors at work? And while CD sales have declined, have overall music revenues – concert-ticket sales, public appearances, T-shirts, endorsements, etc. – gone down as well, or have they made up for the drop in CD revenues?

Stay tuned.

Slashdot it!

Also See:
encourage downloaders – P2P file sharing boosts music sales, November 3, 2007
found serious fault – Facebook unveils ad targeting program, November 7, 2007
Guardian Unlimited – Study: filesharing decreases CD sales, November 6, 2007
andGlobe & Mail – Questions over government file-sharing study, November 7, 2007

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This entry was posted on Monday, November 12th, 2007 at 10:37 am and is filed under P2P. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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