03 October 2012

Does Piracy Harm Sales?

That’s the question asked by Michael Smith.  He doesn’t do a very good job answering:

My colleague, Rahul Telang, and I recently finished a paper reviewing the academic research on the impact of piracy on sales. Our review finds that, when viewed as a whole, the academic literature strongly suggests that piracy harms media sales: the vast majority of academic papers — particularly those published in peer-reviewed academic journals — find evidence of harm from piracy. This conclusion is consistent with reviews of the academic literature by Stan Liebowitz in 2006 and by Felix Oberholzer-Gee and Koleman Strumpf in 2009, but includes more recent studies — and we believe these recent papers make the case of harm from piracy even stronger than what the literature suggested just a few years ago. [Emphasis added.]

Since the main complaint about music piracy is that it harms the artists, three quick questions come immediately to mind.  First, why is the concern about media sales relevant when most artists don’t find media sales to be all that profitable?  Second, what effect does piracy have on ticket and merchandise sales?  Third, what effect do official YouTube music video releases have on media sales?

The first question is important because it highlights the fact those who are most concerned about piracy are usually either useful idiots or corporate shills.  Since I hate corporations (they are a fundamental market distortion), and since most music corporations are busy ripping off the artists they claim to be acting in the best interest of, I see no reason to defend them or their interests.  Incidentally, that means that media sales aren’t really that big of a deal since most artists make a pittance from music sales.

The second question is important in light of the fact that there are more active music artists than ever before.  If piracy makes music so unprofitable, why do more and more people release music?  Answer:  either profitability is so easy to achieve that the effect of piracy is negligible, or piracy doesn’t have a net negative effect on profitability.  Or, to ask it another way:  are artists relying other methods of getting revenue?  My bet is that the price points are different now, which renders concerns about piracy obsolete.

The third question is important because it offers a control for the studies.  Watching officially released music videos on YouTube or other legitimate video hosting sites is the most obvious alternative to piracy because by watching music videos online, one avoids purchasing music while still being able to consume it.  Thus, if sanctioned YouTube videos are shown to cannibalize media sales, then we can conclude one of two things:  either record labels are run by complete and total morons (a distinct possibility) or even the record labels understand that digital media is simply a form of advertising for the more lucrative aspects of the music industry, like tickets an merchandise.

Really, when you think about it, anti-piracy laws only exist to ensure that record label owners have another way to rip people off.


  1. "If piracy makes music so unprofitable, why do more and more people release music?"

    It could be argued that what is actually occurring here is that, as the cost of producing and releasing music has dropped so quickly toward zero, the market has widened. Thus, it is at least technically easier for music to be "profitable", even if piracy does significantly depress potential revenue.

    (I do not, in fact, actually believe that piracy significantly depresses revenue. But the fact remains that the dramatic reductions in the cost of producing and distributing music _must_ be factored into the equation, when considering the changes in the music marketplace. Even 10 years ago, getting high-quality recordings of one's music into the hands of listeners outside one's immediate circle of friends was a relatively time-and-capital-intensive operation, over and above the baseline costs of actually performing it.)

  2. Second, what effect does piracy have on ticket and merchandise sales?

    This question has always struck me as odd. Conflating recorded music (or songwriting) with live performance is like equating painting with sculpture: Sure, they're both "visual arts," but they're two very different forms. You might as well tell the sculptor he can always turn to portraits and landscapes if the market for statues and busts dries up.

    That's why I think the debate about intellectual property has to ultimately take place down at the philosophical level: Do people own their creative expressions? That is the only answer we have to settle. Then the issue is just a basic normative matter of right and wrong -- not a matter of devising some framework that might happen to be good for some "musicians" or "novelists" or whoever in the year 2012.

    We need fundamental, universal principles, not makeshift responses to arbitrary conditions like media sales and revenue.

  3. (Just to be clear: In calling the question "odd," I don't mean to knock you in particular. I'm referring to the standard body of arguments that have been part of this big, public copyright debate that's been going on since Napster blew onto the scene.)

  4. @Matt- If the market widens, wouldn't that mean that the increased supply of music is what's driving down the profitability of music? Funny how the anti-piracy crowd never considers this point.

    @Display Name- Well, seeing as how the whole matter of IP law in the US is predicated on pragmatism and not philosophy (Jefferson, for example, argued that IP couldn't be stolen), it is reasonable to ask whether art can be supported without IP since the whole point of IP is to support art. In this case, a good question to ask is whether people will produce art if they can't profit directly from it. In answering the question, it's important to consider whether artists can profit secondarily or tertiarily from their art, and whether this form of profit is incentive enough to convince them to produce more art. If it is, then the goal of IP laws are accomplished, and the IP laws themselves are no longer needed.