Does file-sharing hurt CD sales?

A new study by two researchers at Harvard Business School and the University of North Carolina, Chapel Hill, finds that sharing digital music files has no effect on CD sales. This is the first study that directly compares actual downloads of music files and store sales of CDs.

The authors, Associate Professor Felix Oberholzer-Gee of Harvard Business School in Boston and Professor Koleman Strumpf of the University of North Carolina, Chapel Hill, conclude that “File sharing had no effect on the sale of popular CDs in the second half of 2002. While downloads occurred on a vast scale during this period – 3 million simultaneous users shared 500 million files on the popular network FastTrack/KaZaA alone – most people who shared files appear to be individuals who would not have bought the albums that they downloaded,” say the authors…

Even in the professors’ most pessimistic statistical model, it takes 5,000 downloads to reduce the sales of an album by a single copy. If this worst-case scenario were true, file sharing would have reduced CD sales by 2 million copies in 2002. To provide a point of reference, CD sales actually declined by 139 million copies from 2000 to 2002.

Here is another interesting tidbit:

31 percent of all individuals who download music live in the United States. Other important countries are Germany with a 13 percent share of worldwide users, Italy with 11 percent, Japan with 8 percent and France with 7 percent. File sharers in the United States are particularly active. While they represent 31 percent of worldwide users, they download 36 percent of all files.

U.S. file sharers download files from all over the world. Only 45 percent of the files downloaded in the United States come from computers in the U.S. 16 percent of music files are downloaded from computers in Germany, 7 percent from Canada, 6 percent from Italy, 4 percent from the U.K. A legal strategy that focuses mostly on the United States is unlikely to change the supply of music files.

In other words, going after domestic uploaders, as the RCAA is doing, won’t cut off supply.

Here is one summary. Here is the original research.

My take: Yes I believe the result. Most downloaders are young or just sampling songs for kicks. But I doubt if this, legal developments aside, would be true five years from now. Over time I expect more people to forgo buying the CD, unless of course the law intervenes.

Addendum: Newmark’s Door offers some additional links. Larry Lessig argues for complementarity. Here is an article that copyright is too strict more generally, and yes The Grey Album is wonderful.