Is file sharing the culprit?

A New York Times article asks the difficult question: is internet file sharing really responsible for declining music sales?

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.

… 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.

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 2002.

“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 other words, people are downloading songs just because they’re free — they’re simply not good enough to buy.
This has been my take on the whole thing from the beginning. I sincerely believe that music sales are down because there is so little good music these days. The other problem with buying music has been around for ages — you must buy an entire album just to get that one song you want. I think this is why iTunes has been so successful. I can buy just the one song that I want to listen to at a reasonable price.
And I do. I don’t pirate music, mostly because there’s nothing I want out there. I do, however, download such things as BBC radio shows from the net, because you can’t buy them here. Every so often, I’ll come across some oddity that can’t be bought at a record store, and feel no qualms about downloading it.
I have a friend who is a recording artist, and I would never dream of downloading her music without paying for it. I know that her music is her job, and I would never want to keep her from paying her mortgage or feeding her kids. Luckily, I’ve never heard a single dud in her entire music catalog, and gleefully plunk down my money for every album.
So, what do others say about the cause of slow sales?

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.