Testing File-Sharing's Impact by Examining Record Sales in Cities

Abstract

Although previous forms of copying have been found to often have benign effects on copyright owners the rise in file-sharing has coincided with a steep decline in the sale of sound recordings. This paper attempts to empirically examine the extent, if any, to which file-sharing has caused the decline in record sales. Using a data set for 99 American cities containing information on Internet use, record sales, television viewing, radio listening, and other demographic variables, an econometric analysis is undertaken to examine the relationship between record sales and file-sharing, as proxied by Internet use, from 1998 to 2003. First, we find that the Internet itself reduces time spent on other entertainment activities, but only by a small amount. We then subtract this generic Internet impact from the overall Internet impact and conclude that the decline associated with that component of Internet use that we can attribute to file-sharing indicates that file-sharing has caused the entire decline in record sales and appears to have vitiated what otherwise would have been growth in the industry. Looking at sales in individual musical genres reinforces the primary conclusion since those genres that seem most likely to fall prey to file-sharing have the strongest measured negative impact from Internet usage.

Keywords: file-sharing, grokster, napster, copyright, pirating, copying, television, radio, internet

JEL Classification: K0, L0, L5, L8