Research Models on Prediction of the Indie Music Industry-1.
Stevans and Sessions’ time series model uses consumer spending on physical purchases of indie music as the dependent variable and explanatory variables including personal income, price index of physical sales, price index of software, per unit price of DVDs and a time trend dummy variable holding the value of 1 beginning in the first quarter of 2000. I have discussed this in detail in my blog Research Models on Prediction of the Indie Music Industry. Despite the lack of data on legal music downloading at the time, Stevans and Sessions finish their analysis with some accurate predictions on their potential effect. They postulate that, even if more aggressive copyright laws reduce the price elasticity of demand, digital distributors’ lower prices would balance out these increases. As a result, they claim that consumers would benefit, since they would not only face price stability, but also an enhanced market for all indie music formats.
Oberholzer-Gee and Strumpf continued the update of the literature with their look at the effect of file sharing on legal sales of indie music. Oberholzer-Gee and Strumpf’s data set consists of 1% of the world’s downloads which are about 1.75 million in number, extracted from P2P download logs from the last third of 2002, a time of rapid growth in the sector. They then used an algorithm to match these downloads with weekly sales of corresponding albums, using a database of over 10,000 ‘album-weeks’ in an attempt to find the true nature of this controversial relationship with respect to weekly sales. From this model, they find that the coefficient on downloads is neither statistically significant nor economically important. If file sharing is not the cause of the decline in sales, Oberholzer-Gee and Strumpf consider other facets that may have played a role including record sales shifting largely to discount retailers, the end of a boom in the industry caused by the introduction of the CD and growing popularity in other forms of entertainment. Although their brief analysis argues that the results would stand in an updated study, it would be practically impossible to separate file-sharers from non-file-sharers with the prevalence in broadband access and improvements in file sharing technology that exist today. Regardless, Oberholzer-Gee and Strumpf come to the conclusion that file sharing had not caused sales displacement, but rather improved general aggregate welfare.
Further to this, 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 have been hurt more in countries with greater broadband access, which serves as a proxy for increased file sharing. 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. As discussed in my blog File Sharing for Indie Artists, the file transfer protocol (FTP) was being used in a variety of legal and illegal ways to share files for nearly thirty years, and was no more a new phenomenon by 2000. It was used by scientific researchers in the ‘80s and ‘90s to share data sets. The teenage hackers employed it for piracy of mostly software and images, which made it popular on online forums. Some of early internet users also used it for MP3 files. Initially, it was relatively easy to legally quell and trace the file sharing piracy methods, however, when an undergraduate student at Northeastern University, Shawn Fanning, launched Napster, it made tracing piracy difficult because the system hosted files from millions of individuals. Napster could not be held liable for infringement of copyright as files were not actually held on Napster’s server. Instead, Napster only kept a list of its users’ file names in a compiled directory. Users were required to search for a song that they wanted and download the MP3 file directly from the fellow file sharers subsequently.
Zentner also separates total and physical sales, in order to take into account substitution of physical music purchases for legal digital ones, finding that file sharing maintains its negative relationship. However, the international nature of the data may deem this part of study premature as digital distribution was still at an infant level of development outside of the United States.
In my next blog I am going to write 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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