p2pnet.net News:- Say I offer you a free flight to Florida. How likely is it that you will go to Florida? It is very likely, because the price is free. If there were no free ticket, that trip to Florida would be much less likely. Similarly, free music might draw all kinds of people, but that doesn’t mean that these people would buy CD’s at $18.

This thought is attributed to Felix Oberholzer-Gee of the Harvard Business School who, with Koleman S. Strumpf of the University of North Carolina at Chapel Hill, produced a startling research paper which says things aren’t nearly as bad the music industry would have you believe.

And it appears in John Schwartz’s New York Times report A Heretical View of File Sharing which centres on the Oberholzer-Strumpf empirical analysis, The Effect of File Sharing on Record Sales.

Actually, Schwartz’s article is only heretical if you’re employed by the Big Five record labels, as are fact realigment experts Amy Weiss, Mitch Bainwol and Cary Sherman of the RIAA (Recording Industry Association of America), Jay Berman of the (International Federation of Phonographic Industry), and all the other people whose hefty pay cheques depend on making people (especially the media) believe file sharers are hard-core criminals; that Big Music is an honourable and truthful corporate citizen; and, that black is white.

In fact, says the NYT story, Weiss expressed incredulity at what she deemed an “incomprehensible” study, ridiculing the notion that a relatively small sample of downloads could shed light on the universe of activity.

In 2003, the RIAA had the NYPD (New York Police Department) acting for the music industry in a raid which, said the RIAA, netted the equivalent of 421 CD burners.

IMIRA’s Bill Evans had been told the actual number was around 156 burners and wanted to know what ‘equivalent’ meant, precisely. “We stated that the raid was the equivalent of 421 burners, as we need to put these operations in perspective based on burning capacity and output, not the number of physical slots for the discs,” Weiss explained. “Since they burn 4x burners - it is roughly 4xs the numbers of burners.”

Evans founded Boycott-RIAA.com. It was acquired by an entrepreneur and Evans, disenchanted by the site’s new policies and direction, left to create IMIRA.

But we digress.

Schwartz’s report kicks off with “The music industry says it repeatedly, with passion and conviction: downloading hurts sales,” a statement that’s, “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. It is also part of the reason that the Justice Department introduced an intellectual-property task force last week that plans to step up criminal prosecutions of copyright infringers.”

But what, the report asks, if the industry is wrong? What if file sharing doesn’t really hurt record sales? - as contended by Oberholzer-Strumpf paper.

“Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates,” they say.

“Last week, the Recording Industry Association of America sent out three versions of a six-page response to the study,” says the NYT piece.

The IFPI also had a response in which it quotes ‘independent’ studies paid for and designed by the record industry.

And previous studies have failed, contend Oberholzer and Strumpf, because surveys of illegal activity aren’t trustworthy, says Schwartz in his NYT report: “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.”

And indeed, Oberholzer told Schwartz he was startled when he first ran the numbers in the spring of 2003 …

… “I called Koleman and said, ‘Something is not quite right - there seems to be no effect between file sharing and sales.’ ”

“The single-bullet theory employed by the R.I.A.A. has always been considered by anyone with even a modicum of economic knowledge to be pretty ambitious as spin,” the report quotes Joe Fleischer, head of sales and marketing for Big Champagne.

The industry response stresses that the new study has not gone through the process of peer review. But the response cites refuting statistics and analysis, much of it prepared by market research consultants, that also have not gone through peer review, Schwartz says, continuing:

“One consultant, Russ Crupnick, vice president of the NPD Group, called the report ‘absolutely astounding.’ Asked to explain how the professors’ analysis might be mistaken, he said he was still trying to understand the complex document: ‘I am not the level of mathematician that the professors purport to be’.”

NDP Group is a market research firm which in and of itself is something of a Net phenomenon.

Clients include adidas International, Campbell Soup, Gateway, International Flavors & Fragrance, JVC, Maple Leaf Foodservice and Wrigley - an impressive list, but bereft of anything and anyone to do with music or the music industry, unless you count hardware manufacturers.

Then Crupnick appeared, literally out of blue, quoting NDP statistics which strongly favour music industry contentions that its sue ‘em all campaign is working. Overnight, and with absolutely no discernible background in on- or offline digital music distribution, he was being quoted in the mainstream media as an expert on p2p and file sharing.

“The first wave of lawsuits and fear of litigation slowed the pace of file sharing originally, but after the appeals court ruling the pace picked up again, according to marketing research firm NPD Group,” says a CNN report here, going on:

“It’s important to keep in mind that file sharing is occurring less frequently than before the RIAA began its legal efforts to stem the tide of (peer-to-peer) file sharing,” NPD Group Vice President Russ Crupnick said earlier this month. “We’re just seeing the first increase in these (file-sharing) numbers.”

In the meanwhile, “If we are correct in arguing that downloading has little effect on the production of music, then file sharing probably increases aggregate welfare,” concludes The Effect of File Sharing on Record Sales.

“Shifts from sales to downloads are simply transfers between firms and consumers. And while we have argued that file sharing imposes little dynamic cost in terms of future production, it has considerably increased the consumption of recorded music. File sharing lowers the price and allows an apparently large pool of individuals to enjoy music. The sheer magnitude of this ctivity, the billions of tracks which are downloaded each year, suggests the added social welfare from file sharing is likely to be quite high.”

This entry was posted on Thursday, April 8th, 2004 at 5:02 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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