Filesharing Is Not the Enemy

In a 2001 episode of "The Proud Family," a Disney Channel cartoon series, the teenager Penny gets addicted to filesharing after she is shown the wonders of a Napster-like program called EZJackster.

Crazed, she starts downloading all the music she ever wanted. Soon after, chaos erupts. Her favorite singer doesn't get his royalty check, her local record store goes out of business, the police come to her house and threaten to take her jail, and worst of all, her mom takes away her computer. Penny practically single-handedly destroys the U.S. economy before she finally sees that filesharing is wrong.

The episode rings with Reefer Madness-era propaganda; the 1936 film promoted the idea that marijuana makes people go insane, have promiscuous sex, and dance maniacally to jazz music in seedy apartments.

Still, the episode's underlying message -- that filesharing is stopping CD sales and destroying the recording industry -- has been promoted by groups like the Recording Industry Association of America (RIAA) ever since Napster hit the mainstream five years ago. Several studies have come out supporting the RIAA's assertions, which have been used to back up some of its actions, like filing lawsuits against people for sharing files and lobbying to have peer-to-peer filesharing categorized as a criminal activity.

But a new study by Harvard Business School and University of North Carolina is going against the popular beliefs surrounding filesharing. After tracking 1.75 million downloads over a 17-week period in 2002 and then comparing those observations to the sales of 680 popular albums, the study found that filesharing has no negative effect on CD sales.

In fact, for the most popular 25 percent of CDs, the study found that downloading boosts sales. For every 150 songs downloaded, sales of that album jumped one copy.

"Initially, we were surprised by our results, given the consistent claim that P2P hurts sales," says Koleman Strumpf, co-author with Felix Oberholzer-Gee. "But on deeper reflection, not so much. Filesharing can potentially boost sales through the user learning about new music, and this could offset the substitution for buying, as is often claimed."

Stealing or Sampling?

The response to the Harvard-UNC study has been mixed. The RIAA decried the study, calling it "inconsistent with virtually every other study done" on the subject. While previous studies have relied on surveys asking users about their downloading habits, the Harvard-UNC study was the first to directly compare actual downloads -- using server logs from OpenNap, an open source Napster server -- with album sales data from Nielsen SoundScan.

Other researchers, like Stan Liebowitz, Professor at University of Texas at Dallas, have criticized the details of the study. Among other things, Liebowitz believes the study shows the result of advertising on popular music, not necessarily the effect of downloading on the entire music industry.

"It's a study that on the surface looks pretty good, but when you get down to the nitty-gritty, serious problems arise," he says. "I don't find the results believable."

Others say the study is evidence of how little we know about the effect downloading has on music sales, and that alone is reason to proceed judiciously when creating laws about the technology.

"The only thing we can confidently say is that filesharing makes some people buy more records and some other people buy fewer records," says Fred Von Lohmann, Staff Attorney for the Electronic Freedom Foundation. "But there's no very clear data on what the ultimate balance of the situation is."

Downloading has been likened to singles, cheap recordings with one or two songs that were used to whet listeners' appetite for a full album. Like downloading, some people bought singles to get the one song they liked and others bought them to sample the music before buying the full album. Aptly enough, singles were phased out by the record industry because they were suspected of taking away from the profit margin of full-length albums.

"When you download a Mp3, are you thinking of it as a substitution -- Ha Ha, now I have that CD and I don't have to buy it -- or are you thinking of it as sampling music that you like?" says Eric Garland, CEO of BigChampagne, a market research firm focusing on online media. "That's the heart of this debate. In our experience, we've found that downloading both hurts and aids the sales of CDs, and it's pretty much a wash."

According to the study, most people only download a few songs per album. Of the albums tracked, more than 50 percent of the songs were never downloaded, which the study seems to interpret as evidence that many people are sampling music.

What about the Record Slump?

There's no doubt the record industry is struggling. The RIAA says it has seen a 31 percent reduction in units shipped in all formats since 1999. According to the Harvard-UNC study, CD sales declined by 139 million copies from 2000 to 2002.

The study's most pessimistic statistical model showed that downloading had a slight negative impact on CD sales, with 5,000 downloads of an album reducing sales by a single copy. This would have accounted for only 2 million fewer sales in 2002, according to the authors.

The study points to a number of other possibilities for the slump besides downloading. For one thing, the record industry's decline happened during a recession, when all industries were suffering. For another, there's competition for the entertainment dollar from new options like DVDs and computer games. And the consolidation of radio by corporations like Clear Channel has led to less music variety and, consequently, less interest from the public.

"The radio is turning into a wasteland," says Von Lohmann. "Fewer people are relying on radio for their musical needs because of the ever shrinking playlists that most radio stations play."

The record industry has also spent the last few years catering to the 15-24 age group under the belief that young people buy the most records and are the most susceptible to advertising.

Young people are also the ones downloading music. This does not mean, however, that they would buy the CDs they are downloading if filesharing didn't exist.

"Peer-to-peer is attractive to folks who are money-poor and time-rich, like teens or college kids," says Strumpf. "But it's unlikely they would be able to buy all of that music in the absence of filesharing."

Whether they would buy the albums or not, the recording industry may have started shifting its attention to the music-buying habits of the over-30 crowd, i.e. the rest of the population. While record sales as a whole are down, adult sales have gone up the last few years. While 15-24 year olds bought 246 million records in 2003, the over-30s crowd bought 417 million albums, according to the NPD Group. Adults purchase 56 percent of all records, and that could increase to 60 percent by 2005.

P2P and Independent Musicians

With only four companies controlling mainstream music, the common belief is that filesharing brings democracy to the music industry by allowing people to have access to music they would never otherwise see. Whether this is true or not is a matter of debate. Some independent artists like Ani Difranco, (who got her start by people copying and passing around her tapes), have come out saying that illegal downloading hurts independents.

The study seems to support this belief.

"Interestingly, independent musicians are the one group who seem to be hurt from downloads, according to our results," says Strumpf. "However, this could be in part an artifact of the few downloads we observe and the poor quality of the sales data for smaller bands."

It's true that the internet allows musicians to reach audiences they otherwise could not, though connecting to that audience can prove difficult. The real differences between independent and corporate musicians may be in what they are selling.

"Many independent musicians are not in the business of selling you a plastic disc, but a relationship," says Garland. "They want a loyal fan, the person who will buy a t-shirt or a concert ticket when they come into town. That's a very different business from the kind of widgets and Coca-Cola products the four major labels are into."

These relationships can foster a loyalty in the form of support. Many people who will not bother to buy a corporate artist's CD will buy the work of an independent artist. Such displays of loyalty have insulated some independents from the effects of downloading, like Lookout! Records in Berkeley, California, which handles Green Day, The Donnas and a host of other bands.

"I don't feel like downloading has harmed our business in any way," says Chris Appelgren, President and Co-Owner of Lookout. "Independents are not the same as major labels. The people who buy our records are fans who have understanding of the size of the business, and they feel that the money does find its way to the artist. So for them, buying an album is a show of support."

Nearly everyone agrees that the artists need to be compensated for the music that people are downloading. The problem is that some see filesharing as a way of ripping artists off and some see it as a technology that, if harnessed correctly, could cut out the middleman and benefit the artists even more. But even after five years, it's still too early to tell which way downloading will go.

One thing is clear, though. Despite the efforts of the RIAA, downloading is still going strong.

"You can try to sue downloading out of existence, but it's not doing to work with tens of millions of people doing it," says Von Lohmann. "It's like prohibition. You can ban alcohol, but people are still going to drink."

Joy Lanzendorfer is a freelance writer living in Northern California.

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