The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence from an Event Study in France

Abstract

Digital piracy is a significant problem for the creative industries. Still, while there have been many academic studies showing that piracy hurts sales, there have been far fewer studies analyzing the effectiveness of anti-piracy measures in reversing this effect. This study attempts to address this question by analyzing how the HADOPI “three strikes” law in France affected digital music sales on the iTunes music store.

To do this, we obtained a panel of iTunes sales data from the four major music labels (Universal Music, Warner Music, EMI Music and Sony Music) across a broad set of countries. We then applied a difference-in-difference approach, using sales trends in a control group of European countries to simulate the counterfactual of what music sales in France would have been if HADOPI had not been passed. Our results suggest that increased consumer awareness of HADOPI caused iTunes song and album sales to increase by 22.5% and 25% respectively relative to changes in the control group.

In terms of robustness, we find that these sales changes are similar for each of the four major music labels, suggesting that our results are not peculiar to any particular label. We also find that the observed sales increase is much larger in genres that, prior to HADOPI, experienced high piracy levels (e.g., Rap and Hip Hop) than for less pirated genres (e.g., Christian music, classical, and jazz). This strengthens the causal interpretation of our results since if HADOPI is causing pirates to become legitimate purchases, its effects should be stronger for heavily pirated music than it is for other music genres.

Keywords: Piracy, regulation, digital distribution, music industry, information goods, natural experiment

JEL Classification: K42, L82, 03, 034