Profit Leak? Pre-Release File Sharing and the Music Industry
32 Pages Posted: 14 May 2012 Last revised: 3 Apr 2013
Date Written: March 7, 2013
Using data from an exclusive file-sharing website that allows users to share music files using the BitTorrent protocol, I exploit exogenous variation in the availability of sound recordings in file-sharing networks to isolate the causal effect of file sharing of an album on its sales. Using within-album variation in illegal downloads and sales, I find that the effect is essentially zero: the elasticity of sales with respect to illegal downloads is one tenth of one percentage point. However, the finding that file sharing is not harmful to individual artists is not inconsistent with the well-documented fact that file sharing is harmful to the music industry (the fallacy of composition). Essentially, increased file sharing of an artist's work allows that artist to gain a larger slice of the shrinking pie that is music-industry revenues. This novel result helps to explain the willingness of many artists to embrace file sharing despite its harmful effects on the music industry as a whole. Finally, I find that file sharing benefits more established and popular artists who are signed to major labels, which is consistent with recent industry trends.
Keywords: Sound recordings, intellectual property rights, copyright, distributional effects of file sharing
JEL Classification: L82, K42, C26
Suggested Citation: Suggested Citation