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New European Commission Report Finds That ‘Piracy’ Doesn’t Hurt, And In Fact Helps, Music Sales

· March 18, 2013

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The Institute for Prospective Technological Studies, part of the European Commission’s Joint Research Centre, just published a new working paper entitled “Digital Music Consumption on the Internet: Evidence from Clickstream Data.”  This report demonstrates that online ‘piracy’ does not have a negative effect on sales, and often, in fact, has a positive impact.  As they put it, their research suggested “a stimulating effect of [online streaming] on the sales of digital music.”

One key part of the paper was their finding that “much of what is consumed illegally would not have been purchased if piracy was not available.”  In other words, each illegal download should not be perceived as being equivalent to a lost sale.  For better or for worse, the music industry has (d)evolved into being singles-driven rather than being album-driven; now consumers can download just the songs they want, rather than having to download an album filled with bad songs.  One example from the report:

Consider an individual interested in a few songs of a given artist. While she may not consider buying the entire album (which also contains unknown songs) when offered the possibility to freely download these specific songs, she might nevertheless be willing to pay for them individually.

Later, the report puts it even more succinctly: “After using several approaches to deal with the endogeneity of downloading and streaming, our results show no evidence of sales displacement.”

Another excerpt explains the benefits of online streaming services as a preview tool that leads to more sales:

On the other hand, consumers may well use streaming to sample new artists and/or songs. In particular, it may be the case that individuals assign a higher value to a song when they posses [sic] it, as opposed to simply having access to it. This would enhance the value of streaming services as discovering tools, which would positively affect sales.

The document also featured some important statistics on the health of the music industry:

Nonetheless, digital music revenues to record companies are growing substantially. They increased more than 1000% during the period 2004-2010, and grew 8% globally in 2011 to an estimated US$5.2 billion, reflecting the importance of digitization in the music industry (IFPI, 2011, 2012).  [This text had the footnote:  “This compares to growth of 5% in 2010 and represents the first time the year-on-year growth rate has increased since IFPI started measuring digital revenues in 2004 (IFPI, 2012).”]

This data comports with the research in the CCIA-sponsored Sky Is Rising reports — both the original U.S. report, and the recent European report — which demonstrate that there are more ways to produce, disseminate, and make money off of one’s creativity than ever before.  In an earlier DisCo post, Matt explained the importance of these evidence-based reports and the unsubstantiated “the sky is falling!” rhetoric they counter.  Content industries try to persuade lawmakers that new laws are necessary due to ‘piracy’ and ‘theft,’ but the numbers show that these parties are instead experiencing success in the marketplace.  Matt also notes that this saga is complicated by disintermediation of middlemen, whose role as exclusive disseminator of content is continually undercut by new technologies that benefit everyone else (the artists and their fans).

Just as the Sky Is Rising reports celebrated the financial health of creative industries, the European Commission study similarly concluded that things are getting better, not worse, for creators:

[O]ur findings suggest that digital music piracy should not be viewed as a growing concern for copyright holders in the digital era. In addition, our results indicate that new music consumption channels such as online streaming positively affect copyrights owners.

Artists, their lobbyists, and policymakers — in both Europe and the U.S. — should read this report, and continue to take advantage of these new, thriving channels and not focus their attention on ‘piracy.’

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.