Category Archives: Filesharing

Proposal in Brazil to Legalize Non-Commercial File-Sharing and Monetize P2P

Pedro Paranaguá points me to a proposal for monetizing P2P file-sharing in Brazil.

The proposal has been submitted as part of Brazil’s open public consultation to review its copyright law. As he summarizes it for non-Portugese speakers like myself (though Google translate did not do a bad job!):

Basically, non-commercial file sharing will be authorized – should the proposal be accepted and passed into law. Each broadband user will pay a R$3 (or US$1.71) fee together with her/his monthly Internet Service Provider (ISP) bill. The ISP will collect the fees and distribute it to a collecting society comprised of authors’ associations that will then distribute the collected fees to authors, composers, and so on in the proportion that the works are downloaded.

Filesharing Costs: Dubious Figures Making the Rounds Again

The BBC ran a story yesterday headlined “Seven million ‘use illegal files'”. Its bolded first paragraph stated:

Around seven million people in the UK are involved in illegal downloads, costing the economy tens of billions of pounds, government advisers say. [emphasis added]

7 million people involved in unauthorised file-sharing is possible, but costs of tens of billions of pounds? It’s not unusual to see such figures bandied around by the rightsholders derived from wild guesstimates of download figures and ludicrously unsound assumptions such as equating every download with a lost sale.

Here, however, it is according to “government advisers” — surely a much more reliable source! A quick read and we discover this isn’t the case at all and these figures are directly recycled from rightsholder sources — with an additional uplift from the BBC: a possible £10 billion or more a year has becomes tens (notice that extra “s”) of billions a year.

First off, the story is based on a report entitled “Copycats? Digital Consumers in an Online Age” commissioned by the Strategic Advisory Board in Intellectual Property (SABIP) from UCL’s Centre for Information Behaviour and the Evaluation of Research. So this is CIBER’s report not SABIP’s — SABIP need not even have endorsed the report. That said, one can see how the BBC’s confusion came about, and this is a minor point (after all CIBER is part of a university).

More important is a check of the actual evidence underlying these very large claimed costs to the economy. Let’s take a look at the report. Page 6, at the start of the Exec Summary states (this is where I guess the BBC got its material from):

Industry reports [3] suggest that at least seven million British citizens have downloaded unauthorised content, many on a regular basis, and many also without ethical consideration. Estimates as to the overall lost revenues [4] if we include all creative industries whose products can be copied digitally, or counterfeited, reach £10 billion (IP Rights, 2004), conservatively, as our figure is from 2004, and a loss of 4,000 jobs. This is in the context of the “Creative Industries” providing around 8% of British GDP. And the situation is not solely a British problem, but a global one. …

But wait a moment: their only source here seems to be (IP Rights, 2004) and that turns out to be a single page press release from an IP (law) firm which simply states:

“Rights owners have estimated that last year alone counterfeiting and piracy cost the UK economy £10 billion and 4,000 jobs.”

So these are just the standard (and utterly unreliable) rightsholders-claimed figures (and not even first-hand!). To be fair in footnote 4 the authors acknowledge that the phrase “lost revenues” is complex and that not all downloaded content would have been purchased. However, they then seem to backtrack on this by saying (rightsholders provided figures again!):

Nevertheless, industries such as music and film do frequently publish estimated lost revenues, or “value gaps’. The BPI recently claimed that between 2008 and 2012 the music industry was looking at a ‘value gap’ of £1.2 billion. (Music Ally, 2008)

Furthermore, that claim that things are “complex” worries me, as things are, in fact, pretty simple: lost revenues mean lost revenues, i.e. the revenues the industry would have got if no unauthorised downloading had occurred. This will clearly be much, much lower than a figure based on assuming every unauthorised download is a lost sale.

Furthermore, looking at revenues in a single industry is dangerous here: we’ve got to look at the overall impact on the economy (and that’s still ignoring the welfare/income distinction). For example, if someone makes an unauthorised download rather than buying a CD they spend the money they would have spent on the CD on something else, be that a haircut, a meal, or going to a concert. If we want to count that as a loss to the music industry we need to count the gain it generates elsewhere.

Good evidence doesn’t get any thicker on the ground later on either as far as I can tell. For example, in the first key finding section (entitled “The scale of the ‘problem’ is huge and growing”):

  • The only empirical study they cite on the impact of filesharing is that Zentner with no mention of some other major studies such as that of Oberholzer and Strumpf.
  • The only figure on the film industry they quote is a claim of a $6 billion annual loss put forward by the UK film industry in interview and “some research (Henning-Thurau et al., 2007) [which] appears to demonstrate evidence that consumers’ intention to pirate movies “cause them to forego theatre visits and legal DVD rentals and/or purchases.”. Looking up that citation one finds (seems there was a typo in the date!): Henning-Thurau, T, Gwinner, K, Walsh, G, Gremler, D (2004) Electronic Word of Mouth via Consumer-Opinion Platforms: What Motivates Consumers to Articulate Themselves on the Internet? Journal of Interactive Marketing. 18 (1) pp.38-52. While I haven’t actually read this article, the title (and journal) don’t suggest this as the most reliable source as to the actual effect of unauthorised downloads on film industry income.

To sum up: it turns out the BBC’s line that illegal downloads are “costing the economy tens of billions of pounds” is based on nothing more than the usual, and completely unreliable, rightsholders claims, recycled via CIBER’s report. This is a worrying example of how industry PR, via repetition in other, more “respected” and supposedly independent sources, can gain legitimacy.

Dutch Study on Filesharing

A new Dutch study on the effects of filesharing has just come out. Unfortunately it is all in dutch! However, courtesy of online translation, it appears the basic message is that filesharing has a net positive impact on welfare (though they term this the ‘economic’ impact):

File sharing has net positive economic impact

The net economic effects of file sharing on the Dutch welfare in the short and long term are positive. As a result of file sharing consumers access a wide range of cultural products. In contrast, a decrease in turnover from the sale of sound recordings, DVDs, and games as a result is plausible.

This is reflected in joint research of SEO Economic Research, the Institute for Information Law (IViR) and TNO to the economic and cultural impact of file sharing for music, movies and games on behalf of the Ministries of Education, Ministry of Economic Affairs and Justice. The analysis is carried out according to a study of statistics and scientific literature, interviews with fervent downloaders, a representative survey among the population and a number of informational workshops in the sector. [translation via Google with some copyediting]

Not being able to read the main study I’m not able to offer any evaluation of its merits or salient points (such as how they trade-off welfare gains from greater access again any costs in lost production — if any).

Update: I’ve been pointed to the English version (thanks Tobias!):

http://www.ivir.nl/publicaties/vaneijk/Ups_And_Downs_authorised_translation.pdf

More comments to come.

New Study: “The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada”

A new study is out on the relationship of unauthorised downloading and music purchases. The work was carried out by two economists, Birgitte Andersen and Marion Frenz, of Birkbeck College (University of London) for Industry Canada. Entitled The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada its description states:

Industry Canada undertook a music file sharing study during 2006-07 to measure the extent to which music downloads over peer-to-peer file sharing networks, for which the sound recording industry receives no remuneration, affect music purchasing activity in Canada. The data used for this analysis are from a Decima Research survey conducted between April and June, 2006, on behalf of Industry Canada. The report, prepared by University of London researchers, Birgitte Andersen and Marion Frenz, found that music downloads have a positive effect on music purchases among Canadian downloaders but that there is no effect taken over the entire population aged 15 and over.

This is a new contribution to the literature examining the relationship of unauthorised downloading and sales which I first reviewed two years ago. The results would clearly support those who argue that the positive sampling effect of unauthorised p2p downloading counterbalances (or even outweighs) the substitution effect (for more on these terms see the review). The effects found are quite substantial, at least when restricted to their P2P downloaders subsample (from the summary of findings)

“… our analysis of the Canadian P2P file-sharing subpopulation suggests that there is a strong positive relationship between P2P file-sharing and CD purchasing. That is, among Canadians actually engaged in it, P2P file-sharing increases CD purchasing. We estimate that the effect of one additional P2P download per month is to increase music purchasing by 0.44 CDs per year” [emphasis added]

However looking through the paper one needs to be a little cautious in taking these results at face value. In particular, the statement in the abstract that “music downloads have a positive effect on music purchases among Canadian downloaders” is a classic case of interpreting a correlation as a causative relationship (this (mis)interpretation is even more baldly stated in the summary of findings — see previous quote above). Given the cross-sectional nature of their data such an interpretation is particularly dubious (as the authors themselves acknowledge in the Data and Methodology section: “… regressions based on cross-sectional data cannot prove causality”).

Furthermore, there is a major problem here with the regression specification: p2p downloads and music purchases may both be driven by an omitted variable — for example interest in music. In that case a simple regression of purchases on downloading activity will be upwardsly biased (i.e. the impact of downloads on purchases will be too high) because those interested in music would then both download more and purchase more. To address this problem you’d need some form of ‘identification’ strategy, probably using an instrumental variables approach. (This issue is very similar to that encountered when doing straight regression of sales on downloads — again the estimated coefficient is going to be upwards biased because both trend (independently) upwards when an album is released.) This problem could be made even worse by focusing solely on downloaders.

Again the authors are aware of this issue but don’t feel they can do much about it (from the end of the Data and Methodology section):

… single equation estimations assume that all independent variables are exogenous and all important variables are included in the estimation. If, however, any of the independent variables are influenced by the dependent variable and/or any of the independent variables, or important independent variables are omitted, then the included independent variables tend to be correlated with the error term leading to inconsistent estimates

Unfortunately, useful instruments are inherently difficult to find and this is why we decided not to use instrumental variable techniques. … …

While it may be true that there was not much they could do about this issue given the data they had it does mean that one should be cautious in taking the regression results at face value — in particular the main finding, for the downloaders subsample, of a substantial positive effect of (unauthorised) downloads on CD purchases, which may simply be picking up an omitted variable (for example, interest in music).

Supply Responses to Digital Distribution: Recorded Music and Live Performances

A while back someone pointed me at an interesting paper by Julie Mortimer and Alan Sorenson entitled, Supply Responses to Digital Distribution: Recorded Music and Live Performances, which they presented at the 2006 AEA conference. I’ve only had a chance to glance through this but it appears to have some interesting data — and some interesting conclusions — for those interested in of the impact of unauthorized filesharing on artists, consumers and society as a whole.

Abstract

Technologies for reproducing and redistributing digital goods have made it more difficult to earn profits from their sale, leading to concerns that socially valuable digital products with non-convex production technologies may not be brought to market. However, digital goods are often jointly supplied with non-digital products, and changes in distribution technologies affect not only the market for the digital product, but also the pricing and profitability of the non-digital good. We outline a simple model illustrating these effects in the music industry, and test the model’s implications using detailed data on weekly CD sales and individual concert performances for nearly 2,000 musical artists over a ten-year period. We show that while sales of recorded music declined after the introduction of file-sharing, concert revenues and the number of artists performing concerts increased dramatically. We examine whether these changes were most pronounced among artists or markets where file-sharing was likely to be most significant. Overall, the patterns in the data suggest that while file-sharing may have eroded profits from CD sales, it also increased the profitability of live performances.

Why the music industry may gain from free downloading — The role of sampling

Title: Why the music industry may gain from free downloading — The role of sampling

DOI: http://dx.doi.org/10.1016/j.ijindorg.2005.10.006

Authors: Martin Peitz and Patrick Waelbroeck

Journal: International Journal of Industrial Organization, Volume 24, Issue 5 , September 2006, Pages 907-913

Abstract: Downloading digital products for free may harm creators and intermediaries because consumers may no longer buy the version for sale. However, as we show in this paper, this negative effect may be overcompensated by a positive effect due to sampling: consumers are willing to pay more because the match between product characteristics and buyers’ tastes is improved. This indeed holds under sufficient taste heterogeneity and product diversity.

Keywords: File-sharing; P2P; Sampling; Information transmission; Piracy; Music

JEL classification codes: L11; L82

Comments

I haven’t yet been able to take a look as this article (online access only through sciencedirect)

(Yet) Another Empirical Analysis of File Sharing

Just came across another paper evaluating the effect of filesharing published earlier this year. Authored by Norbert J. Michel (now of Nicholls State University) and is entitled The Impact of Digital File Sharing on the Music Industry: An Empirical Analysis (Berkley Press’ Topics in Economic Analysis & Policy: Vol. 6: No. 1, Article 18) is available at: http://www.bepress.com/bejeap/topics/vol6/iss1/art18 under a ‘quasi-open-acess’ policy (which so far has at least had the effect of preventing me accessing it).

ABSTRACT:

The first file-sharing software, Napster, was shut down in 2001, but the copying technology’s impact on the music industry is still passionately debated. This paper uses micro-level data from the Consumer Expenditure Survey to examine the impact of Internet file sharing on music sales. Music industry representatives argue that the practice decreases CD sales, while supporters of file-sharing allege the practice could actually increase sales. Using household-level data from the Consumer Expenditure Survey, we find support for the claim that file-sharing has decreased sales.

May have some commonality with the same author’s earlier Digital File Sharing and the Music Industry: Was There A Substitution Effect?, Review of Economic Research on Copyright Issues, 2005 Issue, vol. 2(2), pp. 20-32.

Summary

Exact same approach as Hong’s previous work (see summary in http://www.thefactz.org/economics/p2p_summary.html) but less detailed:

  • Hong uses data 1996-2001 (p.31) while Norbert uses data from 1995-2003 (p.4).
  • Identification strategy: Compare CD purchases (available at micro-level from the CEX) between ‘computer owner’ and non-‘computer owners’ (CEX variable again) and attribute differences to file-sharing.

  • Both use a Difference-in-Differences (DiD) approach

  • Hong does quite a bit of extra such as
    • estimating a demand system for entertainment goods (17 ff.) in an effort to account for the affect of the changing prices of other entertainment goods (videos declined in price over the sample period)
    • kernel matching (12 ff.) to deal with possibility of other underlying differences between treatment (owners) and control group (non-owners)
  • Conclusions: Norbert estimates a 13% decline while Hong settled on an 18% decline (or 33% taking the less conservative figure on p.28)

Just as with Hong (and Zentner’s Broadband variable) the major concern is regarding identification strategy: it is difficult to be confident of estimates that depend on assuming that differences in purchases between computer owners and non-owners can be attribued entirely to file-sharing, particularly when computer-ownership may be associated with so many other activities and characteristics.