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Filesharing, CD sales, and collective licensing

THE HUGE NEWS TODAY, is, of course, the Canadian Federal Court ruling that filesharing does not constitute copyright infringement, and that the major labels cannot continue with plans to sue individuals. Very exciting and crucially important for filesharing worldwide. If you live in Canada, you now have a moral obligation to share major label music 24/7. The news and the court decision.

We’ll have a lot more to say about that story as it develops, but we also wanted to discuss a new academic study that was released this week, which concludes that filesharing does not impact CD sales (it’s been getting a lot of attention). The study seems very well thought out and takes some interesting approaches to disentangling the closely linked rates of filesharing and CD sales (you can read the study here). Ultimately, however, studies of this issue are forced to use indirect social science and economics methods, which make it extremely difficult to convincingly show causality. Which is to say, it’s impossible to do a true experiment measuring CD sales with and without filesharing because researchers can’t just turn off the world’s p2p networks.

The study’s authors have said that they were initially surprised by their own findings. Frankly, we are still skeptical. We may be misreading what is a rather technical paper, but the study seems to be investigating the theory that: if filesharing affects CD sales, then when filesharing becomes somewhat easier or more difficult (e.g. when the number of available p2p copies of a particular album fluctuates), users will buy fewer or more CDs, respectively. Finding no correlation between ease of filesharing and sales, they conclude that filesharing does not affect sales. But there could be many other causal links that lead filesharing to reduce major label sales– including the way that the very existence of filesharing networks reduces the perceived value of physical CDs (people often say, “I’m not going to pay for that CD if I can get it for free,” even if they don’t actually end up downloading it).

While it’s tempting to argue that filesharing doesn’t hurt the major labels (it gives us a convenient justification for supporting filesharing), everything else we know about the industry indicates that it does. There are of course balancing effects– for example, many people use filesharing to try new music and then later decide to purchase the album. But realisitically, this seems like a minority of filesharers, and with the rise of iPods and other mp3s players that don’t tie the user to a computer, interest in owning physical CDs is likely to drop considerably.

And the study rightly points out that the primary effect of filesharing is to greatly increase consumption of music and there is no disputing the fact that the overwhelming majority of downloads are not substitutes for CD purchases. Ultimately, however, filesharing (as well as CD burning) reduces major label CD sales because they separate the decision to listen to music from the decision to pay for it. Given a choice for the first time about whether to pay into a corrupt industry, consumers are saying ‘no’. The media consistently underestimates how political filesharing really is (which is another reason why people were so surprised and impressed by Grey Tuesday). Fans are starting to ask, “Why should I pay $16 for a CD when virtually none of the money gets to musicians?” Saving that money for a t-shirt or a concert is better for them and doesn’t perpetuate the major label monopoly. Of course for independent labels, the story could be very different: fans have good reasons to continue supporting indie labels that are working in the interest of musicians and that have a real commitment to art. And with the major labels bribing radio stations to keep independent music off the air (payola), the publicity that filesharing gives independent artists is crucial.

But while we disagree with this study’s central findings, the authors do make some other very interesting observations, which are well stated and are absolutely crucial concepts for an informed debate about the future of the music industry. Most importantly, they argue that since very few albums are profitable in the current industry (especially for musicians), the financial performance of the industry will have little effect on the availability of music. This runs counter to scare-mongering by the major labels, who insist that people will stop making music if people stop paying for it. As Ian MacKaye of Fugazi told us “If people lose their incentive to make music because they’re not making money, they’re not musicians. They’re business people. Musicians don’t have a choice in the matter, you gotta make music. There’s no choice! It’s not a fucking job description– there’s no choice!” And as these economists point out, there is real value gained from having free access to music:

“Shifts from sales to downloads are simply transfers between firms and consumers. And while we have argued that file sharing imposes little dynamic cost in terms of future production, it has considerably increased the consumption of recorded music. File sharing lowers the price and allows an apparently large pool of individuals to enjoy music. The sheer magnitude of this activity, the billions of tracks which are downloaded each year, suggests the added social welfare from file sharing is likely to be quite high.”

Ren Bucholz at the Electronic Frontier Foundation (today they have an April’s fools webpage posted) consistently points out that peer-to-peer networks have created the largest music library the world has ever seen. But instead of embracing this amazing development and finding ways to make it work for musicians and fans, the most powerful music institutions in society (i.e. the five major record labels) are trying to destroy it. And don’t let them tell you that the current pay-for-download services which have high prices and very limited selections are a comparable substitute—it’s not even close to the same experience.

But none of this means that we can’t support musicians while also preserving unrestricted access to music: Ren and the other fine folks at the EFF have recently proposed a voluntary collective licensing system that could be the future (if we can manage to weaken the major labels enough that they can’t stop it). Essentially, you would pay a $5 or $10 fee to your ISP each month and you could fileshare as much as you like. The money would get divided up among musicians based on how many people were downloading what albums. And who wouldn’t sign up for that? Read the EFF’s proposal and check out this wonderful explanatory diagram that Ren made.


The release of this study comes on the heels of news earlier this week that the Australian recording industry sold a record high number of CDs (despite the major labels’ attempts to conceal this fact so that they can continue to support reactionary filesharing policies). We’re still not sure what the breakdown is on the sales increase, specifically whether it’s coming from major label or independent sales. A friend of ours in Australia who’s a successful musician / indy label owner tells us:

“Are there any smaller labels here? Yup there sure are… Without doubt these guys are doing the best of them all.

Although as Australia is such a small market the retail stores also own a lot of the smaller labels and the smaller labels are just getting swallowed up everyday.”

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