Here’s the headline and subtitle of an article about British music priracy:
“Illegal downloaders 'spend the most on music', says poll
Crackdown on music piracy could further harm ailing industry”
The author of this article is making a critical error. She assumes that the correlation between amount of money spent on music and downloading is causal when based on this study, it is just correlation. Consider two people: Al, a music-lover, has a high willingness to pay for music and Bill, who is indifferent to music, and has a low willingness to pay.
If there is no possibility that they could download music illegally, Al would still spend more on music than Bill. If all music was free on the internet and could be downloaded without fear of punishment, Al would again consume more music than Bill.
Since the legal music competes with illegal music, the price of one affects the demand for the other. An increase in the price of legal music may drive Al to download more illegally. In fact, since Al can get music illegally, it makes him less willing to pay for the legal music.
The effect would be the same for Bill. Low music expenditures would be correlated to low illegal downloads because that person doesn’t like music! This correlation does not imply that shutting down music piracy would be bad for the music industry. Shutting down piracy would drive Al and Bill back to legal music downloads (since the price of illegal music would become infinite). This would be good for record companies.
When the author claims that a crackdown could harm the music industry, she is assuming that legal music and illegal music are complements. That perhaps if you can hear it an album first, you’re more likely to pony up money for it.
My point is that the study doesn’t tell you whether legal and illegal music are substitutes or complements. You’d need a study that looks at how changes in the price of legal music affect the amount of illegal music downloads or a study that looked at how restricted access to illegal music affects legal music purchases.
Based on what the recording industry says, I’d bet they are substitutes. It’s their profits that are being impacted, so I’d give them the benefits of the doubt on this one. If illegal music is really a complement, they wouldn’t be so avid to shut it down, they'd be running free music stations themselves.
Great insight Bryan, but I'm not sure I agree. The way I read it, the author is not saying that illegal downloading boosts music sales. She's saying that people who download illegal music buy more legal music than people who don't download illegal music. So if the UK government decides to cut off internet access for people who download music illegally, it will make it harder for those people (the industry's biggest customers) to buy legal music, which could hurt the industry's bottom line.
ReplyDeleteIn my personal opinion, from what I have read, there is substantial support for the notion that illegal file-sharing has done nothing but benefit the music industry by allowing music to spread more quickly. The RIAA has found its efforts to sue file-sharers largely fruitless, which is why it stopped doing so last year. I am not necessarily willing to give the music industry the benefit of the doubt on this.
Interesting. I think I may want to make this discussion into a follow up post.
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