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04.12.2004
Originally featured on BroadcastEngineering.com
File sharing is not threat to music sales

Internet music piracy has no negative, according to a study released last week by two university researchers. This contradicts the music industry’s assertion that the illegal downloading of music online is taking a big bite out of its bottom line.

Songs that were heavily downloaded showed no measurable drop in sales, the researchers found after tracking sales of 680 albums over the course of 17 weeks in the second half of 2002. Matching that data with activity on the OpenNap file-sharing network, they concluded that file sharing actually increases CD sales for hot albums that sell more than 600,000 copies. For every 150 downloads of a song from those albums, sales increase by a copy, the researchers found.

“Consumption of music increases dramatically with the introduction of file sharing, but not everybody who likes to listen to music was a music customer before, so it’s very important to separate the two,” said Felix Oberholzer-Gee, an associate professor at Harvard Business School and one of the authors of the study. The results were reported by The Washington Post.

Oberholzer-Gee and his colleague, University of North Carolina’s Koleman Strumpf, also said that their “most pessimistic” statistical model showed that illegal file sharing would have accounted for only two million fewer CD sales in 2002, whereas CD sales declined by 139 million units between 2000 and 2002.

“From a statistical point of view, what this means is that there is no effect between downloading and sales,” said Oberholzer-Gee.

For albums that fail to sell well, the Internet may contribute to declining sales. Oberholzer-Gee and Strumpf found that albums that sell to niche audiences suffer a “small negative effect” from Internet piracy.

The study stands in opposition to the recording industry’s long-held assertion that the rise of illegal file sharing is a major cause of declining music sales over the past few years. In making its case, the Recording Industry Association of America (RIAA) points to data showing that CD sales fell from a high of more than $13.2 billion in 2000 to $11.2 billion in 2003 — a period that matches the growth of various online music piracy services.

Wayne Rosso, president of the Madrid-based file sharing company Optisoft, said he hoped the study would spur the RIAA to abandon litigation and look for ways to commercialize file sharing. “There’s no question that there is a market there that could easily be commercialized, and we have been trying for years to talk sense to these people and make them see that,” he said. Rosso formerly ran the Grokster file sharing service.

Eric Garland, chief executive of Big Champagne, an Atlanta company that tracks file-sharing activity, said the findings match what his company has observed about the effect of file sharing on music sales. Although the practice cannibalizes some sales, it may promote others by serving as a marketing tool, Garland said.

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