The European Commission’s Joint Research Centre published new research today finding no evidence to back up assertions made by the RIAA, IFPI, and other recording organizations that piracy displaces digital music sales. The study followed the clickstream of 16,290 European consumers aged 10 to 75 for an entire year as they navigated the web and interacted with sites defined by the study as “illegal download sites,” “legal streaming sites,” and “legal purchasing sites.” The study showed a 10% increase in clicks on illegal downloading sites provided a 0.2% increase in clicks on legal purchasing sites, suggesting a statistically insignificant relationship between piracy and online music sales. The study also found a small but relatively insignificant relationship between legal online streaming sites and music purchases, with a 10% increase in clicks on legal streaming sites producing a 0.7% increase in online music purchases. The study concluded “that the majority of the music that is consumed illegally by the individuals in our sample would not have been purchased if illegal downloading websites were not available to them.”
The relationship between piracy and online digital sales has been a hotly debated issue between recording organizations like the RIAA and their detractors. While a significant amount of research has been done on the link between piracy and hard-copy music sales, little has been done on the link between piracy and digital purchases (which make up nearly 34% of recording industry revenues). The RIAA and their ilk have suggesting that online piracy has had a direct impact on the decline in both hard and soft-copy music sales, pointing to studies that focus primarily on the former. Other studies cited by the RIAA have even suggested that piracy has had a significant negative effect on American job growth and economic output.
However, many of these studies have relied on the flawed assumption that an illicit download equals a lost sale. This kind of flawed methodology makes it difficult to gather a true picture of the impact piracy has on album sales, both digital and hard-copy. A slew of opposing studies, including one from 2007 in the Journal of Political Economy, have suggested that the relationship between piracy and decreasing album sales is “not statistically distinguishable from zero.” One study from May 2012 by a Vanderbilt University professor has even suggested that piracy helps increase album sales during the album’s initial release. These studies hypothesize that the drop in album sales could be attributed to the increasing number of independent record labels gaining more market share and the desire among music consumers today to purchase a single song for a significantly discounted price rather than an entire album, a luxury that was not available in the early 2000s.
This most recent study from the European Commission’s Joint Research Centre is one of the first major studies on the effect of piracy on digital music sales. Its findings may significantly dampen the arguments made by the industry for tougher copyright legislation and increased penalties on copyright infringement.
While the effect of piracy on both digital and hard copy album sales remains difficult to truly discern, online subscription services such as Spotify and LastFM have proven to have a significantly positive impact on digital music revenues. IFPI recently released figures in February showing its first increase in revenue since 1999. According to IFPI’s figures, online subscription services jumped remarkably in 2012 and account for nearly 10% of the industry’s revenue.
The rise in the use of legal online subscription services could be one reason for the significant drop in piracy over the past two years. According to a recent study by the NPD Group, the number of users consuming peer-to-peer services dropped 17% between 2011 and 2012, with a 44% drop in the number of files burned and ripped from CDs, a 25% drop in the number of files swapped from hard drives, and a 28% drop in the volume of music downloads from digital lockers. Several critics attribute this drop in music piracy largely to the increase in spyware and digital subscription services like Spotify.
Many questions remain – will these trends in piracy continue? Will online streaming services affect film and television piracy in the same way? Is piracy even to blame for the loss in revenue attributed to the film and recording industries? Hopefully additional studies will provide a clearer picture of this relationship and help inform the debate over copyright legislation that is sure to make its way back to Congress.