Applying Science to the Study of File Sharing Leads to a Startling Conclusion

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Sometimes something happens in the entertainment industry that becomes the subject of scientific inquiry. Social scientists occasionally seek answers to questions important either to the entertainment industry, society at large, or both.
Take, for example, research being done in the field of economics. At least a dozen economists at several North American universities have been studying the impact file sharing has had on the music industry, in particular, sales of prerecorded music. Everyone is pretty much in agreement that file sharing, made possible and easy by advancements in computer and communications technology, adversely affected recording industry revenue during the 1990s and early 2000s. But how big a problem has it been? At least one economist thinks he has the answer, and it is rather startling.

Stan J. Liebowitz of the University of Texas–Dallas recently shared his discovery at an event sponsored by the Technology Policy Institute at the National Press Club in Washington, DC. According to his research, the entire decline in music sales is attributable to file sharing.

Liebowitz reached that conclusion by developing a metric that makes it possible to compare the results of studies conducted by different economists using different methodologies. Application of the metric reveals that file sharing explains the entire decline in sound recording sales. There are studies that show file sharing not accounting for the entire drop, but even those studies show it to be responsible for a large chunk of the revenue loss. What’s more, some economists, including Liebowitz, concluded that the correct statistic is not 100%, but actually higher. How is that possible? The answer is that when the recording industry’s steady growth in sales during the 1970s, 1980s, and 1990s is taken into account, along with the fact that that growth no longer existed in the decade that followed, a case can be made that file sharing not only wiped out the revenue but also killed off the growth in record sales that should have occurred, but did not, after 2000.

Of course, file sharing is not the whole story of what has been going on in the music industry. The industry may not be thriving, and mergers, downsizing, and re-structuring have taken their toll on employment and profitability. But the industry still exists, and there does not seem to be a shortage of would-be recording artists, which means that the signals are still out there that there is money to be made if you want to make music for a living. Also, there are recording artists who still manage to sell millions of records. Taylor Swift and Adele come quickly to mind.
Members of the baby boomer generation might claim that the music industry is suffering not because of file sharing but because the music being produced today just is not that good, or not as good as it was 20, 30, 40, or 50 years ago. Actually, some recent scientific research seems to back up that claim.

Despite the economic studies, the debate about file sharing is not over. Pointing the finger at something as obvious as file sharing makes it too easy ignore everything else going on in both the music industry – and the entertainment industry as a whole. Technological progress is not going away, nor would we want it to. And, it works both ways. The entertainment industry has benefited immensely from new technology. Video games are everywhere, and there are now thousands of other entertainment options on our television sets, computers, and mobile devices that did not exist a few years ago. Measuring the benefits of technology to the music industry may be even more difficult than measuring the costs. For example, how do we measure the impact of success stories like Justin Bieber, who got their start on YouTube?

The music industry may have been sluggish in coming up with new ways to make money, but the job’s getting done. Concert revenue is up. People still go to concerts – and are paying a lot more than before to see and hear their favorite acts and buy their memorabilia. There is also a lot more music in places where there did not used to be new music. Music seems to be everywhere. New music is now a staple on television shows and commercials. For example, is there a car commercial that does not feature the latest pop hit?

So, while we are waiting to see if anyone, any economists, that is, challenge Dr. Liebowitz’s conclusions – the scientific way of doing things, you know – let’s see if anyone has any suggestions for other entertainment industry issues that need some scientific research.

The statements and opinions expressed in this piece are those of the event participants and do not necessarily reflect the views of any organization or agency that provided support for this event or of the National Academies of Sciences, Engineering, and Medicine.