A new study by two business professors -- The Effect of File Sharing on Record Sales: An Empirical Analysis -- concludes that "downloads [of music] have an effect on sales [of CDs] that is statistically indistinguishable from zero."

The result seems counter-intuitive, since industry data show that the number of units of music shipped fell from 1.161 billion in 1999, the year of Napster, to 798 million in 2003, a drop of 31%. In any event, the music industry has already expressed its skepticism, and will soon have its computers humming, so the debate has just begun.

This does not really seem like the right question, though. Realistically, music distribution must shift away from putting bits on pieces of plastic called CDs and shipping them around the country on trucks, and toward the practice of sending the bits over the Internet. The recent bankruptcy of Tower Records is the writing on the wall.

This transition will require huge investments by many companies to create the infrastructure of online businesses. These investments seem to be happening. In fact, the field may be over-crowded; a recent Wall Street Journal headline said, "Shakeout May Mute Download Services" (March 23, 2004)(subscription required).

So the more important issue concerns not the impact of unauthorized downloading on CD sales, but on legitimate downloading services, ones that reward the artists for their work and that must recoup both these costs and their investment. In both law and good sense, the copyright holders are the ones who get first crack at the new business model.

posted by James DeLong @ 1:47 PM | General

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