The Effect of File Sharing on Record Sales: An Empirical Analysis

This study has been kept away from the mainstream for some time now. It is published in the Journal of Political Economy based in the University of Chicago, and has been shedding light on a topic conveniently assumed to be as simple as an evil vs. good battle.

The article has resurfaced on technology related sites including slashdot.org arstechnica.com, and tech.netscape.com among others.

The Federal Trade Comission used this study in their 2004 conferences titled "Peer-to-Peer File-Sharing Technology: Consumer Protection and Competition Issues." Check out some of the other presentations and make your own judgement in which direction the FTC is 'leaning' the research.

Abstract:

For industries ranging from software to pharmaceuticals and entertainment, there is an intense debate about the appropriate level of protection for intellectual property. The Internet provides a natural crucible to assess the implications of reduced protection because it drastically lowers the cost of copying information. In this paper, we analyze whether file sharing has reduced the legal sales of music. While this question is receiving considerable attention in academia, industry, and Congress, we are the first to study the phenomenon employing data on actual downloads of music files. We match an extensive sample of downloads to U.S. sales data for a large number of albums. To establish causality, we instrument for downloads using data on international school holidays. Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period.

Quote:

"With no clear theoretical prediction, the effect of file sharing on sales is an empirical question. Most of what we know about the effects of file sharing is based on surveys. The evidence is mixed. File sharers generally acknowledge both sales displacement and learning effects, and it is unclear if either effect dominates."