January 17, 2009
Economic effects of file sharing positive on balance
The economic implications of file sharing for the level of welfare in the Netherlands are, on balance, strongly positive in the short and long terms. File sharing provides consumers with access to a broad range of cultural products.
Conversely, the practice is believed to result in a decline in sales of CDs, DVDs and games. This conclusion was drawn on the basis of a study into the economic effects of file sharing on music, films and games.
This study was carried out by a consortium of SEO Economic Research, the Institute for Information Law (IViR) and TNO and commissioned by the Ministry of Education, Culture and Science, the Ministry of Economic Affairs and the Ministry of Justice of the Netherlands. The analysis drew from statistics and recent scientific literature, interviews with heavy file sharers, a representative survey among the population of the Netherlands and a number of informative workshops with people working in the industry.Estimates of the volume of global unauthorised download traffic vary strongly, but all signs are that this involves many billions of files per year, constituting a substantial share of international internet traffic. Around 4.7 million Dutch internet users aged over 15 years have, over the past 12 months, engaged in downloading without paying on one or more occasions. People tend to see music, film and game sharing as a generally acceptable phenomenon, yet they are ill-informed about the techniques used and the relevant legislation.
Legislation unclear
The study found that little is known about what is and what is not permitted when it comes to file sharing. Whereas downloading for one’s own use is permitted by law in the Netherlands in the case of copyrighted music and films, game sharing is unlawful. In the case of peer-to-peer (P2P) networks, content is not only often downloaded by users but also made available again to others, usually automatically. The uploading of files without the prior consent of the right holders is not permitted. Determining the impact of unlicensed downloading on the purchase of paid content is a tricky exercise. File sharing and buying are not mutually exclusive. On average, file sharers buy just as much music, more DVDs and more games than people who never download. Similarly, file sharers visit concerts more often and buy more merchandise.
Welfare gains on balance
In the music industry, one track downloaded does not imply one less track sold. Many music sharers would not buy as many CDs at today’s prices if downloading were no longer possible. At the same time, we see that many people download tracks to get to know new music (sampling) and buy the CD if they like the music.And so whereas file sharing can also have a positive impact on purchasing behaviour, turnover in the entertainment industries is likely to be negatively affected. This applies in particular to CD sales as music downloading is most common. The impact varies depending on the popularity of the artists, with established artists bearing the brunt and lesser known artists benefiting as file sharing raises their profile. On balance, society as a whole reaps welfare gains as the loss in turnover is made good by revenues generated by a large group of file sharers who would never have bought the product if downloading were not possible.
New business models
The music and film industries face the challenge of matching supply to changing consumer demands. New business models are taking the stage. The music industry is making an all-out effort to tap new sources of income (concerts, merchandising and sponsorship) for although there is a place for music recordings, such recordings alone will not be enough to run a profitable business in the future. In the film industry, the markets for cinema visits and DVD sales are still on the rise; DVD rentals have dropped sharply. This could change in the future as faster internet connections become available, and so business models need to be reinvented here too. The games industry is showing exuberant growth, particularly at the console games end and in the related hardware-software-content combination, where the spectre of file sharing looms much less large than in PC games, where turnover is now flat. The specific platform-restricted official game release is so attractive that this industry might well be able to better prevent or sidestep the file sharing that besets the music business.
The Dutch government, in cooperation with the Dutch research institute TNO, has recently conducted a survey into the economic effects of file sharing on the music industry. The results are quite surprising as they’ve concluded that illegally downloading music (which is allowed in Holland) has a positive effect on the music industry. If it would no longer be possible to download music, the sales of CD’s would further decrease. Quite the perspective change, or not?
File sharing driving salesFile sharing, more commonly known as downloading music, is quite a hassle actually if you’ve ever tried it. You can never be sure that you are actually downloading what you wanted to in the first place. That aside, the people who do so, are more likely to BUY music as well. On top of that they visit more concerts, and they buy more merchandise related to the music they buy and download. As a result file sharing has a positive effect on the music industry as a whole. In the survey, it was also asked, what would change if it would no longer be possible to download. As you might have guessed: less CD’s would be sold at the current price point.
I’m not sure if you all would have guessed this dynamic. But, I have always wondered about the ‘truth’ to declining sales of CD’s and the reasons for it. As it appears from the survey, the risen price of CD’s might be to blame much more for it. It seems, that the consumer is no longer willing to pay those prices. Perhaps it is time to reinvent that product, not by putting the blame on the consumer, but by looking at the business itself. THE question should be: how can we attract the people that don’t buy our products anymore, instead of how can we convince the people who don’t buy our products to buy our products anyway. There’s a nuance in that question that is often not considered. It’s not a marketing issue, but a product development issue.
Blurring boundariesThe results of the survey show that the money is shifting from the CD, to other elements of the music industry (even though the people who download music buy more music) as well. That fits the theme of blurring boundaries, where CD sales or retail is blurring with that of live events.
The question then becomes: would this apply to the movie industry as well? And if so, which parts of the movie making industry could blur with other industries related to it?
Reference: Here
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