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| With little fanfare, researchers at the Harvard Business School and the University of North Carolina at Chapel Hill have released a report that debunks a primary assumption by the music industry. "What we have found is that file-sharing on the Internet has not affected the sales -- or lack thereof -- of popular CDs," Harvard Business School associate professor Felix Oberholzer-Gee told NewsFactor. File-sharers most likely never would have purchased CDs of the music they shared and downloaded online, according to the report, co-authored with Koleman Strumpf, a professor at Chapel Hill. These findings may come as a shock to the Recording Institute Association of America, or RIAA, which has been waging an aggressive fight against online music piracy -- first through warnings to users of such sites as Morpheus or Kazaa, then by advertising to the larger community, and most recently, by filing lawsuits against individual consumers. The RIAA's latest strategy was the last resort for the association, which assumed that the ever-growing popularity of online music file-sharing was responsible for declining retail sales. Suing its customers, though, has placed the RIAA in the company of SCO and Microsoft -- a coterie of institutions that tech consumers love to hate. Direct Link? Yet, as the Harvard-Chapel Hill study shows, there is no direct link between declining sales of CDs and online file-sharing activity, illegal though it may be. One analogy that helps make sense of this seeming disconnect -- which does, after all it appear to fly in the face of logic -- is a person entering a contest and winning a free trip to Florida, says Oberholzer-Gee. "Certainly, that person would go on the trip. But would that person pay to go to Florida on his own initiative? You can't necessarily assume that." The faulty assumption that fans who download music for free otherwise would purchase it is the heart of the problem, he says. Previous surveys have asked two groups (users of Kazaa, et al., and non users of these communities) the same question: "How many CDs have you bought?" It is, perhaps, the wrong question. "What they have found is that the people who do download buy fewer CDs," says Oberholzer-Gee. "But what they should be asking is, 'How many CDs would you have bought if you couldn't download music from the Internet?'" Inexplicable Drop Even if a link between file-sharing and declining CD revenues were established, it would not explain the drop in music sales over the studied period. Based on the most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy, the study shows. If this worst-case scenario were true, file-sharing would have reduced CD sales by just 2 million copies in 2002. However, CD sales actually declined by 139 million copies from 2000 to 2002. The authors say this study is unique in that it uses data from file-sharing services that directly observed 1.75 million downloads during 17 weeks in the fall of 2002. Using statistical methods, researchers were able to test whether sales of an album declined more sharply if that album were downloaded more often. Same Path While it is unlikely that these findings will derail the RIAA from its current path, they are worth noting by other companies that might be tempted to follow the same course of action -- that is, initiate lawsuits against individual members of these trading communities. Microsoft, for example, recently found portions of its operating code posted to I.T. Web sites. Its response was relatively benign, limited to sending warning letters directed to people downloading the code. Indeed, says Oberholzer-Gee, "even if 150,000 copies of pirated Office were suddenly downloaded from one of these sites, I would be careful in concluding that 150,000 sales of Microsoft Office have now been displaced. You just don't know that -- it takes a study to determine whether that is so." The study does, however, offer some consolation to the music industry and other companies that feel as though they have been robbed by unauthorized P2P activity. "There is great promise in using the Internet as a promotional, as well as market research, tool," Oberholzer-Gee says. "For example, traditionally it has been difficult for the music industry to predict which albums will be moneymakers. The music industry could use the file-sharing community to test different versions of a song to see which is more popular, before it completes the album." In fact, he noted, there are rumors that the music industry has been using the services of such companies as BigChampagne, which track P2P activity and usage, to do just that. Clearly, the music industry will have to begin thinking out of the box, agrees Eric Garland, CEO of BigChampagne. "Lawsuits are a dead end. After the RIAA filed the first lawsuit, file-sharing in fact exploded," he told NewsFactor. The best recourse open to the music industry is to make the point of transaction the payment vehicle. "I think having ISPs licensed to distribute music is the ultimate solution," he says. |