joegratz.net

This paper by a couple of economists at Harvard Business School and UNC Chapel Hill confirms empirically what many have suspected: “Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates.”

They grabbed a few months of logs from a popular OpenNap server and lined them up with SoundScan record sales data. They found zero affect on sales — either positive or negative. When they tweaked their assumptions to be as pessimistic as possible, they found that, at worst, 5,000 downloads were necessary to displace one CD sale.

What are the implications for alternative compensation systems? These data suggest that no ACS is necessary, and the status quo is just fine. The status quo, however, includes the fact that P2P file sharing is illegal and that penalties are possible, though statistically unlikely. Were free P2P downloads legitimized, more CD sales would probably be displaced. Perhaps not many more, but there exists some population at the margin kept from file sharing because of its illegality, rather than its inconvenience or the dismal sound quality of 128kbps MP3s.

I’m getting happier and happier with the status quo, complete with RIAA’s Suits of Damocles. File sharing is happening, the record companies are licensing to legitimate services, records are being sold, music is being made. As long as you aren’t the sucker stuck with the $3k bill from losing the RIAA lottery.

This study makes me think that even a modestly-sized ACS — with, perhaps, 25% of file sharers participating at $1-$5 per month — could replace all of the lost CD sales from P2P sharing. It would be much bigger than the DART royalty pool created by the Audio Home Recording Act for standalone home digital recorders (which is $3-4 million a year), but this paper suggests that we might be able to compensate copyright holders for P2P downloads with a system small enough that it doesn’t give enough incentive to game the system.

Perhaps more importantly, this paper’s methodology means that even small-scale, relatively poorly funded researchers can put together an accurate picture of what’s being traded on P2P networks. It makes the measurement problem look much, much less daunting.

Via BoingBoing