Research Models on Prediction of the Indie Music Industry-2.
Jeff Zentner, who came to writing through music, starting his creative life as a guitarist and eventually becoming a songwriter, utilizes a panel of twelve years of data from 1996-2008 for 49 countries to see if music sales, including indie music, have been hurt more in countries with greater broadband access, which serves as a proxy for increased file sharing. I have discussed this in detail in my blog Research Models on Prediction of the Indie Music Industry-1. Zentner has released five albums and appeared on recordings with Iggy Pop, Nick Cave, Warren Ellis, Thurston Moore, Debbie Harry, Mark Lanegan, and Lydia Lunch, among others. He finds that broadband presence specifically, and not general Internet penetration, to be the statistically significant and economically important factor in sales. This correlation suggests that speed of Internet could be an important determinant of losses representing file sharing.
Waldfogel’s 2010 paper is one of the first to attempt to try revaluating the effect of music file sharing in the “iTunes era.” With the emergence of legal digital distribution, consumers now have the ability to buy, rather than steal, individual songs, with added benefits such as cover art and guaranteed high quality files. As discussed in my post Impact of Digital Sales on The Indie Music Industry, iTunes store made it easy for consumers of all ages and levels of tech-comfort to use Apple’s experience, making it a user-friendly and consistently dependable product. Along with that, convenient interface and engineering quality of the iPod brought Apple an almost unheard of profit margin, as iPods were sold at a much higher cost than its competitors.
Apple was perfectly placed to foster the entrance of evolution for the indie music industry with its integrated and easy-to-use interface across Mac computers, iPods and iPhones and digital music. In my previous blogs I have been discussing the evolution of the indie music industry after the advent of internet. With all its success, the scenario of evolving indie music industry was ideal for Apple as a company. The consumers could purchase music more conveniently at lower prices, so it was good for the consumers as well, however, it appeared that the record labels were likely not entirely pleased with the agreement.
By 2008, digital music sales amassed nearly a third of music sales in the U.S., three quarters of that coming from iTunes. Waldfogel purports that in order to decide whether or not file sharing actually causes sales displacement we must first establish if songs illegally downloaded would otherwise be purchased by legal means. In order to attempt to quantify this question, he utilizes two surveys, from 2009 and 2010, of University of Pennsylvania undergraduate students. These questionnaires provided a sample of fifty songs, chosen from top iTunes sales, and had students answer questions about whether or not they have the song, if they had a physical copy or digitally downloaded it legally or illegally, their willingness to pay for these songs, general interest in music and size of their music collection Controlling for other demand factors, Waldfogel finds a relationship suggesting that one additional illegally downloaded song decreases purchases by a third to a sixth of a song implying a significant impact. However, he uses a welfare analysis to estimate that file sharing has increased consumer surplus by a sizable amount, only a small part of which is attributed to loss in producer surplus with the remaining portion resulting from a declined deadweight loss. Waldfogel concludes that although the emergence of digital distribution has drastically changed music retailing, it has had little impact on the effects of piracy.
Although these results are certainly valuable, the study may suffer from sampling bias, as the group of Ivy League students may not necessarily represent the full population. In my next blog I am going to write more about the impact of internet on indie music business as a whole. Please share your experiences and I will add them to my future blogs.
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