A fascinating paper from David Blackburn, 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.
Blackburn does a little mathematical magic to simulate what would happen if file-trading were reduced by 30%. [As you read, visualize the powerlaw curve that I use as my blog's logo: "leftward" means towards the hits and greater sales.].
[From page 32] In this counterfactual world with 30% less file sharing, the lower 75% of the distribution of sales is shifted further to the left, while the top of the distribution increases its sales. This is what should be expected given the estimates from above. 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.
This conclusion leads to further questions regarding the impacts that file sharing has had and will have on the recorded music industry. In particular, if file sharing essentially shifts sales away from established acts toward unknown acts, this has potentially very important implications for how talent is developed and distributed in the industry. As with the simple short-run effects of file sharing on sales, the direction of the impact is not clear. While one might guess that increasing the sales of new acts would lead to more investment in developing new talent, it is also possible that the investment in new acts is done as a fishing expedition to find artists who will sell millions of records. 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.
The data follows, but first a little explanation. The 1% line refers to the sales of the least popular albums; the 99% line is the sales of the most popular. The third column is the calculated sales if file-sharing were reduced by 30%. As you can see from the below, that would help the sales in the top 25% of popularity, and hurt those below. Which is another way of saying that file-trading seems to help those in the bottom three-quarters of popularity, probably for the reasons stated above.
Percentile | Actual Sales | Sales with 30% less file-sharing
1% 73 70
5% 170 166
10% 281 277
25% 757 745
50% 2,852 2,851
75% 10,110 9,831
90% 26,531 26,934
95% 45,255 47,357
99% 133,983 165,054
The Long Tail implications of this are pretty clear. For the majority of artists further down the tail, free distribution is good marketing, with a net positive effect on sales. Which is yet another reminder that the rules are all too often made to protect the minority of artists at the top of the curve, not most artists overall.
Thanks to Miscellaneous Factz for the pointer.