Does illegal file-sharing cut into CD sales?

by on September 27, 2007 at 2:14 pm in Music | Permalink

Stan Liebowitz says yes, rebutting the well-known arguments of Koleman Strumpf, published in the Journal of Political Economy.  I would be happy to link to a response by Strumpf.  In the meantime, two notes: a) I suspect non-fair use CD burning is in any case the bigger issue, and b) significantly lower musical sales, and yes sales are falling, still can be welfare-improving.  The real consumption of music seems to be up.

josh September 27, 2007 at 2:17 pm

It is for me!

Peter Schaeffer September 27, 2007 at 4:06 pm

Intellectual property theft as welfare-improving. Let’s assume it’s true. How far do you want to take this concept? It probably wouldn’t be impossible to find cases where tangible property theft would be welfare-improving. Can anyone provide examples?

8 September 27, 2007 at 4:18 pm

Squatters.

Anonymous September 27, 2007 at 4:27 pm

I have bought more music and went to more shows based on band i found via file sharing.

AQ September 27, 2007 at 4:57 pm

It’s, “yes, sales are falling…”

jason voorhees September 27, 2007 at 5:40 pm

In pharmaceuticals, where firms face such large fixed costs, patents appear (maybe?) to be relatively efficient ways of encouraging productive activity, combined with some expiration of the patent. This lets the monopolist recoup their fixed costs. But, does this really carry over to music and media, generally? Even if there are fixed costs there, they are much smaller in comparison to the typical pharmaceutical firm. Maybe we’re granting monopoly rights over production and distribution of music/media that are too restrictive, in comparison.

Chris Durnell September 27, 2007 at 7:46 pm

Actual musicians do not make money from the sales of music anyway. Or at least very few of them do. Instead, that goes to the record companies. They make money off of ancillary products like concerts, tours, and merchandise.

In a way, illegal downloading music benefits the actual artists because their music is disseminated further, boosting the likelihood that more people will buy the products and tickets that actually put money in their pocket. Complaints about music downloads are coming from record companies whose middle man role is increasingly obsolete.

As mentioned previously in this thread, intellectual copyright laws are specially constructed to define “theft” in a way not normally recognized. Those rules are artificial and were developed to create a social good. If the rules of the game has changed, one can legitimately argue a weakening of those rules if they create a higher good.

I am not convinced by the arguments of the record companies any more than I am convinced by the arguments of the medieval guild system against markets and new competitors outside the guild system. The laws they are referring to were set up specifically by them to benefit themselves.

James September 27, 2007 at 8:06 pm

I meant to say, “However, if the Metallica CD is only worth $10 to me, then I would not have purchased it anyhow.”

Bill Stepp September 27, 2007 at 8:27 pm

Dolohov writes:

I refuse to get music illegally these days: I have far more interest in encouraging artists to make their work available electronically, and I’m willing to put
my money where my mouth is.

Musical artists make far more money by touring, live concerts, endorsements,
and paraphenalia (not that kind) sales than they do by selling CDs.
Recall that Prince gave away free copies of his latest CD in Britain in
July, to the consternation of the music industry there. He didn’t do it because he’s a
nice guy, but because he’s a good businessman.
The music recording industry needs to change its business model, or it
might go the way of other dinosaurs.

Peter Schaeffer September 27, 2007 at 11:34 pm

The boundaries between real property and intellectual property are fuzzier than you might think. In the US trespass is considered to be a crime and stopping trespassers is quite legal. In Sweden hiking across private land is considered to be a right (or so I am told by Swedes). Is the US restriction on trespassing an artificial constraint on personal freedom (hiking) or a defense of private property rights?

As for music as “contrived† intellectual property, why not take the argument further? Why tolerate patents or any other copyrights? Why should pharmaceutical companies be able to enforce their patents any more than music copyright holders should be able to enforce theirs? Why should J.K. Rowling have a monopoly on Harry Potter books? I could print them and sell them for a lot less? Wouldn’t that be welfare enhancing? Certainly cheaper drugs would increase welfare?

I would be the first to agree that enforcing music copyrights is near impossible in the current technical environment. I would also agree the DRM is doomed for the foreseeable future. However, that doesn’t demonstrate the copyright violations are either morally defensible or gains to net welfare.

ed September 28, 2007 at 3:15 am

Significantly lower musical sales, and yes sales are falling, still can be welfare-improving.

Now that’s something I’d like to see shouted from the rooftops.

Floccina September 28, 2007 at 10:07 am

I am undecided on the morality of breaking the copyright laws so I have been doing without. I doubt that patent and copyright yield a net benefit to humanity.

eriks September 28, 2007 at 11:32 am

I’m firmly in the “I buy more albums and go to more shows because of illegal downloading” and “most music is crap” camps.

Michael Blowhard September 28, 2007 at 5:11 pm

I’m all for throwing spitballs at music companies. But aren’t we forgetting one thing — the artists? It’s hard enough to make a few bucks as an artist, god knows. If laws and/or practical understandings about art-and-entertainment are going to be tinkered-with, shouldn’t a moment’s thought be given to how the tinkering will affect the ability of artists and entertainers to make a few bucks? Not that I have anything constructive to say about it. I am struck, though, by the way the comments here seem to focus on consumers (good!) and record companies (bad!) and skip the p-o-v of the artists almost entirely. Y’know, they really do *make* things — songs, theater productions, poems, stories, and such. And it seems just plain weird to me to argue that this “making” is somehow by its nature completely-utterly different than the making involved in making, say, a table. Craftsmanship, effort, time, and imagination are all involved. They invest time, energy, talent, and effort in this “making.” (You could also argue that artists and entertainers provide services — entertainment and distraction and edification services.) To wave all that away as somehow, I dunno, not worthy of the same kind of respect that the work of a farmer or a cook deserves strikes me as bizarre.

doug September 30, 2007 at 2:09 am

Just a note: the claims that anyone “buys more music because they share music with their friends” lack a control. (I.e., you don’t really know what you would do if you didn’t have the free music available.)

And, the insistence suggests rationalization. Blaming the music industry’s greed (which also exists) is a cop out. That’s not to say it wouldn’t be great if the music was cheaper and the artists got the money. It’s just convenient to conflate the two things.

Mike October 1, 2007 at 11:53 am

A side note about the “most music these days is crap” argument. It’s not different from the “they don’t build houses like they used to” argument. Music from the 50s or 60s or whenever you think was the golden age seems so good because you’ve forgotten about all of the crap that was produced at the same time, just like houses built 100 years ago seem so much sturdier because the junky ones fell down long ago.

Most music produced *ever* was crap, and that’s perfectly fine and has little to do with what people are buying, I imagine.

F.S. October 2, 2007 at 10:21 pm

“Does illegal file-sharing cut into CD sales?”

According to a Harvard survey from March 2004 the damage developed from file-sharing tends to zero.
The principal reasons for decrease in revenue in the music industry are the same all over the world.
-Strong substitution of legal sales through non-authorized cd burnings.
-Stiff competition relative to decreasing leisure budget (expenses for other media)
-General uncertain business environment

“File-sharing increases welfare?”

Consumers are making as much profit as the price for the product lies under their individual willingness to pay.
Producers on the other hand only gain profit when they achieve a certain amount for their product which brings the marginal cost in.
In the case of the music industry it strikes that the latitude between marginal costs and selling price is extraordinary big. It costs about one dollar to produce a music-cd, but the consumer have to pay $15 or more. The very fact is that the margin broad in such a way is a sign that this market contains huge deadweight loss. If the CD’s would be cheaper more of them would be sold – and the consumer and producer together would have a bigger benefit.
One part of this deadweight loss is recoup by distribution of digital copies. If people don’t want to pay $15 and download music from the internet than this is an utility from the economic field of view. In this situation a profit is attained. This profit is calculated between the difference of individual willingness from the music hearer and the marginal cost for copying the CD. Without this possibility of file-sharing this profit wouldn’t be achieved.

Conclusion: File-sharing does not harm everyone. One the other side some get utility thereof. All in all we are better with file-sharing than without.

“The point of view of the artist”

With the quantity of circulating copies of an act the awareness level and the current market value of an artist is increasing. On top of that a spillover-effect arises. The bigger the awareness level the bigger are the potential earnings of an artist by the use of live gigs, engagements in advertisement or disposal of cell phone ring tones.

Dofus Kamas December 27, 2007 at 11:50 pm
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