Interviews with Digital Media Thought Leaders
Revenue Impact of P2P File Sharing
Podcast Audio | Posted by Phil Leigh on May 24, 2010
Jim Burger
Today’s audio podcast is an interview with Jim Burger who is an intellectual property attorney with Dow, Lohnes. As such, he is as vigorously opposed to copyright infringement as anyone. Nonetheless, Jim questions the validity of claims by music executives that Peer-to-Peer file sharing has been a major cause the industry’s revenue decline.
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He readily admits a correlation between P2P activity and declining CD sales, but emphasizes that mere correlation does not constitute causation. For example, CD sales topped-out during the 1999-2000 period, but those were the same years when Napster was most active. Not only was Napster the first popular P2P network, it was also probably the most widely used. Album sales did not decline until 2001 which was the same year that Napster was shut-down by a judge’s order.
From 2000 to 2008 album sales dropped by almost 50%. Aside from the P2P file-sharing on post-Napster renegade networks, Jim notes there were two other rising trends that correlate with the decline in album sales. More importantly, each of the additional factors might also have displaced album sales via substitution.
First, between 2001 and 2004 album sales dropped about 5% per year. During those same years DVD sales grew 65% annually. Given that DVDs and CDs are priced about the same, a fraction of the DVD sales might have been directly competing with CDs for the consumer’s discretionary funds. Put another way, at times the typical consumer might have reasoned that a DVD movie was a better value than a CD and consequently elected to buy a DVD instead of a CD. If only one-out-of-eight DVD purchases was influence by such reasoning, the entire decline in CD sales from 2001 to 2004 could be explained by the rise of DVD sales.
Second, although DVD sales flattened from 2004 to 2008, a second factor gained momentum that may also have displaced album sales. Specifically, digital singles became available through online stores such as Apple’s iTunes. As album sales declined 13% annually from 2004 to 2008 digital singles grew at an annual rate of over 70%.
Prior to the advent of digital singles, record labels did not commonly promote physical singles. Instead they preferred that customers buy entire albums, even if the customers were primarily interested in only a few tracks. Suddenly the widespread availability of digital singles enabled consumers to “cherry pick” their favorites. For example, they could buy their three favorite tracks of a newly released album for only $3 as opposed to the $15 or so typically required to buy the entire album.
Jim laments the economic decline of the music business because like nearly everyone he loves music. As with most of us, his musical tastes are an integral part of his personality. Our favorite tracks provide experiences we want to share with intimate family and friends. For many of us music motivates us while we exercise and for some it inspires us when we think. Our interest in music is not going to vanish.
As noted in earlier posts, when music is easily shared in cyberspace more of us can more easily become acquainted with new compositions. Some of them will become fresh motivating and inspiring experiences as well. They can brighten our days, lift our attitudes, and underscore our moods. Given a choice of a “free” P2P download that could well be infected with pernicious software, most of us would likely tolerate commercials or pay a fee for a dose of rhythmic Prozac.
Categories: Podcast Audio
Tags: digital-music, Jim-Burger, Music Industry, P2P File Sharing, record-labels, RIAA
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I would say that the way in which the industry dealt with the ‘threat’ of P2P and the resultant alienation of consumers via suit cases etc contributed significantly to the decline.
A failure to sieze the opportunity digital presented, stunted our growth as an industry; we should have been in the position we are in now, back in 2000. Alas, the ‘battle’ continues:
http://www.themusicvoid.com/2010/05/sour-lime/