According to a recent study, those who illegally download music are also significantly more likely to purchase music online legally via services such as iTunes. It follows that the record labels should fight even harder to stop pirated music. Explain.
Top Posts
Tags
art art of office politics banana seeds blog books boston california chicago coffee computers crime current events decision-making economics education evolution family financial crisis food and wine friends funny game theory incentives iPhone kludge language law marriage maths movies music obama politics psychology publishing sandeep has bad taste sanitation sport statistics suicide teaching terrorism the web tomatoes travel TV vapor mill war winter writingSubscribe via RSS
Join 1,504 other subscribers
Cheap Talk 
5 comments
Comments feed for this article
April 23, 2009 at 2:20 pm
Mario
The lost value of pirated music to the record labels is only equal to the fraction that would have been purchased legally otherwise. Since pirated music is effectively free, we have to assume that the number of records pirated dwarfs the number of records that would have been purchased in the absence of piracy. Since this study shows that many of the people pirating music are both capable of and willing to purchase music legally, our assumption of the number of sales lost is likely too low.
What is missing is data on how the pirated music sales are affecting legitimate sales. If the pirated music is being used (as some pirates argue) as a sample, with the well-liked music being purchased legally later, then the estimates of stolen music would be brought back down. It could also be that the hard-core pirates are acting as scouts or connoisseurs among their peers; although the pirate’s music was obtained illegally, their influence may lead their more law-abiding friends to purchase the same songs. Shutting off that access could very well lead to an overall slump in sales.
April 23, 2009 at 11:11 pm
ben
I’m sure I’ll miss what you were getting at. But as I see it the fact that illegal dowloaders buy more legal music categorizes them as those with a higher wtp for music in general than those who only download legally. The fact that they not only download lots of free music but also buy more legal music than the legals speaks to the value they attach to music. So the benefit of shutting down the illegal markets would be greater to music sales if high wtp for music consumers operate in these markets vs. low wtp for music consumers.
I don’t know if that made any sense, but if it did I want to offer a caveat. It could be the case that these illegal markets help transition the consumer to an increasing returns environment, especially if they are the music aficiandos they seem to be. When exploring a new genre there are often substantial costs involved in this exploration (I would gander most consumers aren’t genre explorers, but those that are probably highly value music). The monetary cost of the music is hardly the significant cost, as when exploring the main costs can be time, boredom, or frustration. But if it is free up front you may be less hesitant to just thrown it on your I-Pod and then have it to listen to in your more receptive moods. Clearly, this has a psychological aspect to it. Needless, to say once the costly period is over, the listener may enter a stage where the more albums he listens to the more he wants to buy and this translates to more legal purchases (possibly for quality purposes on the economics side, and possibly to validate an interest in new genre on the psychological side). Obviously these increasing returns periods can’t last forever, but the main point is maybe illegal downloads drive legal purchases sometimes.
April 23, 2009 at 11:15 pm
ben
I’m sorry I didn’t read Mario before I wrote. He wrote what I said (and more) much better than I did.
April 23, 2009 at 11:31 pm
jeff
you both had the same thoughts as me, and yes it does depend on some assumptions, but i think that the assumptions that make this story good news for the music industry (as it has been casually interpreted) are more exotic than the assumptions that make it bad news.
April 24, 2009 at 7:37 pm
ryan
i think the way people model the consumption of art (including music) should be revised from a typical producer/consumer model to a model of joint investors. i believe that utility is derived from art through a learning process which generally requires an investment by the observer to focus and gain an understanding of it. the artist is tasked with creating something which will provide new understanding. so the artist has to have some discovery to teach in the first place, and then has to find some way to explain that discovery to others. no matter how eloquently the artist can express their idea, some effort is required by the observer to interpret and enjoy it. artists then further benefit from being able to build on their audience’s previously learned ideas by self-referencing. similarly, the work is most valuable to people who have already put the effort into learning and understanding previous work. for example, despite how much new music is being created all the time, we get really excited when an artist we know releases a new cd. in the same way, i look forward to jeff’s posts with anticipation not only because of the reputation but also because of the context which makes his posts clearer and more entertaining. i feel we are joint-owners of the understanding of that context because its value for me depends on jeff writing new posts and its value for jeff depends on me reading the new posts. obviously artists borrow from other artists, so there is some substitution available.
to the point, being able to direct your listening experience (e.g. illegal music downloading) allows gaining a specific understanding of specific artists’ contexts, so music tastes become more specific. i think this is what leads to purchases, since listening to music indiscriminately is free (e.g. radio).
obviously there is a huge endogeneity problem here since presumably people buy music for the sake of being able to direct their listening experience. i dont think this story can explain away this endogeneity.
one thing is for sure: musicians who are already popular stand the greatest to lose from illegal downloading.
while we are on the subject, it seems to me that the music industry exhibits greater fragmentation than pre-internet days. it seems like there is a greater amount of musicians in the middle-class. this would make me very happy if it were true. do you agree? is there any way to track this trend?