The Economics of P2P File-Sharing

brajesh writes "Does P2P file-sharing really affect music sales and in what ways? According to a blog entry at "The Long Tail", a paper from David Blackburn[.pdf], a Harvard PhD student, on the economics of P2P file-sharing concludes that it does indeed depress music sales overall. But the effect is not felt evenly. The hits at the top of the charts lose sales, but the niche artists further down the popularity curve actually benefit from file-trading. Form the paper - "Artists who are unknown, and thus most helped by file sharing, are those artists who sell relatively few albums, whereas artists who are harmed by file sharing and thus gain from its removal, the popular ones, are the artists whose sales are relatively high." But then "File sharing is reducing the probability that any act is able to sell millions of records, and if the success of the mega-star artists is what drives the investment in new acts, it might reduce the incentive to invest in new talent. This is, at its heart, an empirical question which is left to future work." There is also another compilation of studies on economics of P2P."

Comments

Here come the flames!

[udderly]

The hits at the top of the charts lose sales, but the niche artists further down the popularity curve actually benefit from file-trading.

From each according to his abilities; to each according to his need. Lighten up--it's a joke!

Re:Here come the flames!

[eyebits]

You are making Ayn roll in her grave. :)

Re:Here come the flames!

[udderly]

Udderly shrugged.

Re:Here come the flames!

[macdaddy357]

So, teen pop shiiat loses sales, but real musicians find their audience with P2P. No wonder the RIAA hates it. You can't snooker people who get to try before they buy. P2P makes it much harder to rip off children, which has been the recording industry's MO almost since Edison invented the phonograph. Don't buy CDs!

In other words...

[Egregius]

P2P file sharing is the right thing to do...it's socialist.

Re:In other words...

[Yokaze]

> socialism is government being mommy and daddy providing for needs, controlling and subsidizing unprofitable industry, and promoting mediocrity.

No, it is not. It is what opponents associate with socialism. Especially, when phrased the way you do. If formulated less biased, it can be one form of socialism. (Statecontrolled production with social-security networks)

> I'm not saying the music should be free, I am saying that the recording industry needs to be brought down to erect a new business model where the recording artist are the profit center, not the recording industry. Socialism my ass, this is a Revolution.

Bringing the owning class down and to empower those people actually working in some kind of revolution for the common good is a traditional socialist position. And even one of the more radical one. Calling it business model is nothing more than a fig leaf.

Re:In other words...

[Kjella]

Well, socialism has been taken to mean many things (I feel like pulling up "civics" from Civ4). In particular, there is a social model, an economic model and a government model. The social model means that the state will provide universal healthcare and other social benefits to people that are unemployed, invalid and so on. I suppose you may call this "mommy and daddy providing for needs", economically on the basis that is it ultimately more productive for society to have people healthy and returned to the workforce even though they can not afford the treatment, and morally on the basis that everyone should be entitled to some minimum standard of living regardless of their ability to provide for themselves. You'll find that most of Europe believe quite strongly in this model.

The economic model with state-controlled and protected industry has for the most part been abandoned as a general principle, but not entirely. Many countries have some form of public transportation, public utilities and so on that are state-owned, because it is considered easier to socially optimalize it as owners than to regulate them as monopolies. For example, it is usually better for society as a whole to have more public transportation than is economically optimal for the transport company (less pollution, less congestion, less public roads to build and maintain and so on). They have for the most part been exposed to competition, but service goals and such maintain the social goals. Even China has pretty much abandoned socialism as an economic model in favor of a market economy.

Socialism is also a government model, where "the people" are in charge and thus there is no need for any other party. The basic lines of Marx that each worker should be represented in government, is more like a form of direct democracy than the one-party model that became the mark of communism. You also need to separate between the actual and formal government model. As an example, many parts of Europe have kings, queens but are still democracies. Just like the "People's republic of China" isn't much like a democratic republic.

As far as the rethoric against the RIAA goes, it sounds pretty socialist to me. It's all about how the captialists (RIAA) are exploiting the workers (artists), and how they should revolt and form some sort of people's republic (no large capitalists) where the workers (artists) all get their share of the profits. Let us assume that everyone trades by p2p, and music industry as we know it today crumbles. What do you see? In the old days, artists and composers were sponsored by kings and rich men. I think an new generation of "superstars" would appear, corporate shills sponsored by large corporations with massive promotion budgets. It would not matter if they are spread around because they are nothing but concealed corporate propaganda. That is the fallacy of most revolutions, the average man has rarely come to power. More often than not, he has simply paved the way for another master to take the same place.

Investment in new acts?

[thrills33ker]

"File sharing is reducing the probability that any act is able to sell millions of records, and if the success of the mega-star artists is what drives the investment in new acts, it might reduce the incentive to invest in new talent."

So what this is saying is, P2P helps smaller independent artists and is detrimental to large "manufactured" pop acts. Which is pretty much common sense, and is why the corporate music industry is so against it.

The argument that "lack of investment" will produce a shortage of talent is clearly ridiculous. How many of the great, truly talented acts we all know and love were the product of "investment" by the music industry? And how many struggled in poverty for years because they loved making music, before finally being signed up by a label and exploited for all they were worth...?

Re:Investment in new acts?

[JaredOfEuropa]

"File sharing is reducing the probability that any act is able to sell millions of records, and if the success of the mega-star artists is what drives the investment in new acts, it might reduce the incentive to invest in new talent." So what this is saying is, P2P helps smaller independent artists and is detrimental to large "manufactured" pop acts. Which is pretty much common sense, and is why the corporate music industry is so against it.

Indeed. What it is saying, is that small acts may no longer actually need that investment and backing from the labels in order to make a decent living off their music. Small acts may now be able to make it on their own... and at the very least they will not have to sell themselves into slavery in order to get their music published. That's why the industry is so much against it, because it just might make them obsolete.

Hopes

[nnnneedles]

Hopefully this will move the industry somewhat away from acts such as Britney Spears (which traditionally have much higher profit margins and lower risk than smaller acts) and towards a business model that is wrapped around greater diversity and the continual sale of older music (which they usually drop the ball on fast, in order to focus the public on the newer mega acts).

Maybe the records industry could somehow start promoting clusters of artists and whole genres instead of one mega artist? Hmm..

Balancing the scales

[Graham1982]

Perhpas this is a good thing in the sense that the lesser known artist has a chance to rise up and even out with the more popular artist. Most of the songs I download are not mainstream anyway, why? Because I can turn on the radio or the TV if I want to hear those artists. P2P gives me a chance to search out further for something that might really inspire me. Just because your not on MTv does not mean your music blows. The quality of mainstream music is starting to wear me down lately anyway.

It's here and it isn't going away

[Ckwop]

"Nothing, not all the armies of the world, can stop an idea whose time has come." - Victor Hugo

P2P is here. It's not going away and you can't even legislate it out of existance. For right or wrong, there is nothing the various copyright industries can do except adapt to the change. Everything else is just hot air.

Simon

Re:It's here and it isn't going away

[TheRaven64]

It's been a few years since I read Les Miserables (a translation - my French isn't good enough for the original), but I seem to remember that the line you quoted was said by the leader of the revolution a couple of days before he and all of his friends were killed...

Bring the niche

[bbzzdd]

Artists who are unknown, and thus most helped by file sharing

For the past 50-years the only way to be a "successful" musician was to write songs 2:50 long and sell 500,000 records. Ever wonder why everything on the radio sounds the same? If an artist can't break even, they're pretty much worthless in the eye of the label.

Legitimate online digital distribution of music could possibly replace the notion of rock stars with micro-stars in their respected genres. There just needs to be some sort of way to market these niche artists online so the cream rises to the top. A group who could make 80% off of their recordings is not so bad off considering the average signed artist only sees 5 - 15% per record.

Good

[Apreche]

What this means is that being a musician will no longer be a multi-million dollar a year job. It will be a job that pays only thousands of dollars a year, the same thing "the rest of us" get paid. And it also means that more people will be able to be musicians, as opposed to now where being a musician for a living is very difficult. I'll definitely take many musicians making many songs and each making enough money to pay rent over a few musicians making a few songs and making enough to pay everyone's rent. Ask yourself which of these two makes a better society.

Re:Good

[ultranova]

As a musician, I really don't give a fuck about making a better society. Take your utopian level playing field and shove it up your ass.

As a non-musician, I really don't give a fuck about making a better society. Lets abolish all copyrights and motivate musicians into making music by raking them over hot coals if they don't. If they complain, let's remind them that it was their idea own idea to shove the utopian ideal of a level playing field up someones ass.

Or you can give a fuck about making a better society and I can give a fuck about it, in which case we both might get a better deal, or at least conduct a more constructive conversation. This is what the various copyright industries never seem to get: if you don't give a fuck when it's not your ass on the line, don't except anyone else to give a fuck when it is.

Hmmm

[PhotoBoy]

"File sharing is reducing the probability that any act is able to sell millions of records"

How about file sharing is allowing people to sample the artificial crap the music industry churns out these days and they decide not to waste their money on the product?

We need a better model.

[Myself]

I particularly like the Fairshare proposal floated by Ian Goldberg, in which you could "invest" in promising new artists. It gives incentive to get in on the ground floor with a little-known artist, rather than to ride the coattails of a megastar.

Any alternative would be better than the current system.

He showed his work

[eyebits]

Yeah, but he had formulas, data, charts and stuff. Even used those funny greek symbols and had partial differential equations. It must be right. :)

the not so nice way to state the obvious

[twitter]

What he's really saying is that you have to suppress all other acts to have the mega-stupid star sell millions of albums. Without a choke point, such as broadcast radio of the 20th century, there is no ability to focus pop culture and it drifts where it will.

This will be good for everyone but the current three monopoly publishers. Popular taste will do a better job of finding talent than payolla in the form of coke and whores. A more distributed music distribution system will be more competitive for artists and the money that now flows into a few hands will flow into many. The job will get done and people will still pay the piper.

the industry has their priorities wrong

[tomcres]

They should spend their money scouting for the next Pink Floyd rather than trying to manufacture more Britney Spears. Think about it, Britney Spears may sell millions of records, but for how long? 10 years max? Pink Floyd was selling platinum or better for almost 30 years. Plus, you don't have to do as much promotion. People will buy Pink Floyd because it's good music, and it has appeal across generations and genders. Britney Spears' audience is so narrow you could fit it through a pinhole--adolescent and pre-adolescent girls.

I think the industry's biggest problem is a lack of diversity. Right now, everything on mainstream radio sounds exactly the same. Even ten years ago, radio was still crap, but at least you could differentiate the music better. Personally, I rarely even listen to the radio at all anymore, and when I do, it's a classic rock station.

Record companies want to go with what's "safe" these days. No one wants to take a risk on signing and promoting an artist that's "different." However, the big rewards come with big risk. I really wish these huge, billionaire conglomerates like WEA and SonyBMG would gamble a little bit more. They're actually losing a lot of good acts who are moving to smaller labels like Koch and Sanctuary. Audium (a Koch label) has become one of the best labels in country music by signing artists who got cut by the majors, like Dwight Yoakam, Merle Haggard, and Dale Watson. Sanctuary is now home to the likes of Iron Maiden and Morrissey, two of England's best sellers ever, who still are putting out good albums. It just kills me how labels will not settle for "just" platinum anymore. You have to go multi-platinum to be a success now. I remember how Capitol was getting disappointed with Garth Brooks when his albums started selling "only" two million copies. This is the same Garth Brooks who single-handedly saved Capitol/EMI from bankruptcy with No Fences and Ropin' the Wind, each of which sold something like over 10 million two consecutive years. He had the top 3 albums in the U.S. for over a year. But if he's only two-times platinum and not ten-times platinum, then he's no good to Capitol! This is the kind of moronic thinking that drives the recording industry. It is pure, unadulterated greed. So much greed that it completely clouds any sensibility they might have.

Re:Taking it like a victim.

[Jarnis]

I hope they do.

Free market ensures that if some fat exec having a hissy fit says 'I'm not playing with you anymore', someone else will be happy to provide the same service (probably at lower cost).

If P2P kills huge record monopolies, and instead we have numerous small companies who make money from selling CDs and un-DRMed downloads *regardless* of P2P, that's free market pwning artificial monopolies right there.

It might very well be that current huge and bloated 'content creation industry' will be 'damaged' by P2P, but it's luridicious to claim that everyone would stop making music, movies and TV just because of P2P's 'effect' on making money with the content.

I'm still convinced that if the 'content business' would just bite the bullet, restructure to lower expectations (their current legal offerings are grossly overpriced) and instead put down unDRMed DL service with all the content in the world, at uber download speeds, they'd make gigabucks *regardless* of the fact that people would copy the stuff. Why bother with P2P sites and untrustworthy files if you can get a 'legal' proper version, perfect quality, no strings, use as you like within the framework of current law, at a reasonable price?

I know if my choices were 'DL from uberfast official site, 10Mbit/sec, perfect quality, 3-5$ for the full contents of a DVD, ready to be burned to disc if I so choose' and 'grab dvdrip with no extras off P2P at crappy speed and no guarantee of quality', I'd pay a few bucks for no hassle.

Fat execs are unable to grasp the effect of internet and plentiful bandwidth. Their 'product' is PURE DATA, so *gasp*, internet will make distribution of said data much more efficient than their stupid 'manufacture shiny discs' business model.

Current record exces sound like scribes whining when someone invented the printing press, and started mass-producing books that earlier had to be scribed by hand (and were extremely expensive and rare). Today's internet makes reproducing of entertainment so much more efficient and cheaper, so those CD presses belong to the museum, and as costs go down, so must the prices. CD presses had so huge upfront investment required that the companies could create an efficient monopoly. Anyone can trump up a website, and while today the bandwidth is still not free, I expect the price of it to go down so rapidly that in a few years bandwidth costs of sending 10 GB movie file over the internet is fractions of a cent.

In which case you can no longer charge 20$ for a copy of a movie.

Movie theaters are in a deep doodoo as well. They will have to improve presentation quality and service - to make it more like a 'special thing' that movies used to be back at the start of the last century. Improving home theaters are pwning crap theaters, and their offering of 10$ movie showing + overpriced soda is no longer attractive to the customer. ADAPT OR DIE, just like every other business has to.

filesharing and economics

[FruFox]

A few points here :

1. True, filesharing might reduce the incentive to invest in new acts. But it definately reduces the need. If you don't need millions of dollars to launch your album, just a laptop and a podcasting site, then who needs investment? I think what will happen is that the promotional aspects of the music biz will survive in a substantially reduced form (after all, people still need to hear about you!) but the whole production and distribution megalith will go the way of the 8-track.

2. I agree, though, that P2P itself means next to nothing to a small unknown artist. Nobody is going to type your name into Limewire if they have never heard of you, obviously. Internet radio and podcasting are muhc more meaningful and useful tools for such artists. You get a podcaster to listen to your music, they play it for people, those peopel go to your website, etc.

3. It's said a lot, but it bears repeating : even Britney Spears makes only pennies per CD. The big name artists make all their money on touring. So there's no reason to worry about the ten cents you might be 'stealing' from Britney if you download a song. If you love her and want to support her, go to her concerts, buy her clothes, her perfumes, whatever. She gets a lot more money out of that.

Essentially, the music industry has reacheed the point where it is almost completely parisitical in nature. And like any parasite, it wants to control its host, and fears the light of day. Right now, they exploit the fact that the people and most importantly the legislators don't really grasp the issue at all. When you say to someone "Should they be allowed to steal our music?" and they know nothing of what is truly going on, it's hard to blame them for saying "Gee, I guess not!"

But we don't have to worry about that. This revolution requires no propaganda on our side. With every MP3 player, every iPod, every DVD player sold, our view sells itself. Eventually the RIAA and its bloodsucking ilk will be reduced to the level of rambling lunatic old men defending their collections of old cans and newspapers with bloodthirsty vehemence, oblivious to the fact that nobody wants them any more.

Missing the point

[CustomDesigned]

If you don't like the way record labels are investing their money then why don't you start your own record label and show us all how it's done?

Talking about not hearing the other sides argument. The point is that small artists don't *need* a record label any more. So we don't care how they invest their money - except that suing grandmothers doesn't seem like the best use.

We also have the classic "free" vs. "free" equivocation. I don't want to get music for free. I want to support the artist. But I much prefer to buy albums directly from the artists. And I hate stupid restrictions. "Liberian Acapella" is one of my favorites. They sing at churches and sell their self produced albums. I have many albums from Magnatune (a "record label" that does distribution only). Another favorite is David Bellugi from Italy.

That said, I am a copyright Nazi. I confiscate and destroy illegally copied RIAA music whenever I find it, give my teenage daughters a lecture on "playing by their rules if your going to listen to their music", and threaten to take the $3000 out of their bank account if they get caught distributing copies (I realize the lawsuits are for online distribution, but the principal is the same). Of course, the fact that I can't stand most of the music has *nothing* to do with this...

What I really need is some official RIAA materials on copyright violation, so that we can be clear that the copyright Nazi thing is part and parcel of RIAA music, and not something I am making up.

A brutal dictatorship put first man in space

[AHumbleOpinion]

It was a socialist/communist nation that put the first man into space.

Uh huh. When the Soviet Union is offered as evidence of the failure of communism the commies ;-) say that it was really a dictatorship and a poor example of communism. Now you cite it as an good example. Well which is it?

The first man in space was put there by brilliant hardworking scientists and engineers. Too bad circumstances forced them to serve such an abomination of a government. They deserved better.

Re:A brutal dictatorship put first man in space

[damiangerous]

I'm not talking about the cosmonauts. I'm talking about the "little people" on the ground. Plesetek was the site of at least 3 fatal accidents, one of them a Soyuz explosion that killed at least 50 people. There was also the Nedelin disaster that killed 126 people. Although that was later discovered to be an ICBM accident rather than a rocket the concepts are very much the same. The Soviet system being what it was, I don't think those people had too much choice in their jobs. When you have to apply for a permit to get a new apartment or move between towns your options are rather limited.