Why Most Artists Profit from Piracy
Piracy is not all that bad for musicians. In fact, research has shown that less popular artists actually profit from piracy. This can be concluded from, and is supported by several studies. Frustrated as they are, the music industry claims that they lose millions a year due to piracy, but is this really the case?
Two facts:
We will try to explain these two seemingly contradicting facts, and list three factors that may help us understand what’s going on…
Artists sell more albums thanks to piracy
Several studies have shown that most artists actually profit from unauthorized sharing of files. They sell more albums because people have the opportunity to download songs and entire albums for free. A study by Blackburn (2004), a PhD student from Harvard, found that the 75% of the artist actually profit from piracy. Blackburn reports that the most popular artist (top 25%) sell less records. However, the remaining 75% of all artists actually profit from filesharing. The same pattern was found by Pedersen (2006, see graph), who analyzed the change in royalties paid by the Nordisk Copyright Bureau between 2001 and 2005.
But why do these artists sell more? Well, there are a couple of possible explanations.
LPs, CDs, DVDs and MP3s
The increased album sales in the late 90’s may very well have been caused, at least in part, by the shift from cassettes and LPs to CDs (and not just piracy!). CD players were getting more and more popular and a lot of people were exchanging their LP collections for CD collections. After 2000, CDs were not that special anymore, and the number of albums sold normalized (see graph below). It’s also likely that the decline in CD sales was influenced by the increased popularity of DVDs and MP3s.
This argument is also mentioned in a research paper by Hong (2004):
The results indicate that transition from LPs to CDs might describe the increase in music sales during the 1990’s.
And in a report from Pedersen (2006):
the period 1995-2000 represents a truly unique situation in the modern history of Danish record sales and 10 million units sold in 2004 is more likely a return to regular conditions than a sign of crisis.
This graph plots the number of albums sold in Denmark, and shows that the decline in sales after 2000 is not that special, but the uprise in the late 90’s is (Source: Pedersen, 2006).
The Internet is changing the way people experience music
Like we mentioned before, the Internet opened up a ton of possibilities for people to discover new artists and music. Not only illegal downloads, but also legal downloads, or paid downloads with the possibility to preview songs make it easier to discover new artists.
Social communities, and music services like Last.fm and Pandora also play a big role in the evolution of our music experience. Before the Internet, people had only a few possibilities to discover new music. Friends, radio stations and record stores are three of them, where the last two are in part sponsored by the marketing campaigns of the music industry. Today people are less dependent on what the music industry is campaigning for.
Wait a minute… the music industry and the RIAA always say that they are losing huge amounts of money because of filesharing. Isn’t this true?
Well, the fact is that there are less albums sold in total compared to some of the years when album sales were booming. However, it is hard to attribute this decline in sales to piracy (alone). From the research that has been done on this topic we can conclude that the effect of piracy on the music industry’s lost income lies somewhere between 0 and 30% (of the decline in sales, not of the sales in total). Pollock (2006) gives a comprehensive overview of these studies and concludes:
The basic result is that online illegal file-sharing probably has some negative impact on traditional sales but the effect is appears to be quite small. The size of this effect is debated, and ranges from 0 to 100% of the sales decline in recent years, but a figure of between 0 and 30% would be a reasonable consensus value (i.e. that file-sharing accounted for 0-30% of the decline in sales not a 0-30% decline in sales). At the same time there is still substantial disagreement in the literature with the most impressive paper to date (Oberholzer and Strumpf 2005) estimating no impact from file-sharing.
One of the things we can be pretty sure of is that the music industry is starting to lose control over their customers. A great deal of their income was generated by overly promoted albums and artists. It are those artists and albums that suffer the most from piracy. It gets harder and harder for the music industry to market artists to the top position of the charts now the customers heva all kinds of alternative ways to discover new music.
In conclusion we could say that music is more alive than ever before, that piracy is a tool to build a fanbase, and that the times when the music industry could dictate what we were listening to are over.
And that’s a good thing…
Sources:
Previously: geoTorrent.org Distributes Free Satellite Imagery
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Great article! Thanks.
just watch as the big label companies squirm :) their time is almost up…
Excellent piece. It’s rather funny to see that you used the Oberholzer & Strumpf report, since for a recent paper I wrote for college on DRM and piracy, I also used that report. It’s very helpful.
Great post Ernesto.
If you look beyond music, almost every form of mainstream media is realizing that the only way forward is not to shun the Internet but to embrace it. This is complete opposite to Napster days.
Examples: Media powerhouses working out deals with YouTube instead of rushing lawyers to ‘em; New York Times putting digg/delicious buttons on news stories.
RIAA still seems very slow in realizing this generic philosophy. But perhaps for good reasons. Like you said - people are now discovering more and more music from little folks and thus buying less of mainstream hyped music. For RIAA they can’t figure out how to take advantage of it(beyond iTunes perhaps).
Cheers,
Zaid
wow! if that isn’t the most flawed/one sided reasoning i have ever read that jumps to exaggerated conclusions with no backing…
good point when you show the decline in sales… and greater point when you say that you can’t attribute the decline in sales to piracy alone. I fully agree. Piracy is just one small factor that has led to a decline in cd sales along with many other (legal) alternatives such as legal mp3 sales and other things…
how can you so easily dismiss the theory that piracy can nott be solely attributed to the decline in cd sales and in the same article show that smaller artists benefits can be attributed to piracy and claim that the increase in smaller artist revenues is a direct result of piracy?
75% of all artists profit from file sharing?…hahahahahahaha
you can’t have your cake and eat it too…
sad thing is people are buying this bull shit as truth and research with all your flawed and insignificant citations that are just claims to expertise, but lack consistency with the research… lameness, dudes
big surprise this is being posted on a torrent site… you pay these guys to crunch some numbers to make it look like file sharing is good?
RIAA sucks balls and they don’t know what they are doing, but it looks like you guys do too, just on the opposite side of the fence
rork wrote:
Exactly, but the thing is.. I’m trying to make a point here….
And although the data are debatable, there’s a lot of truth in there as well. The RIAA is paid to lobby for the music industry, I stand at the other side of the fence.. for free!
Piracy isn’t the solution, but the fact is that things need to change, and the music industry will have to “adapt”.
This post has all the signs of having been written by a college student.
Underground and Indie Artists would obviously make more money if illegal filesharing didn’t exist. And let me tell you, these artists need to be properly paid for the work they do. The average member of a regularly touring mid-tier rock band in his mid 20’s that sells 30 to 50,000 thousand records makes around 20-30k a year. The average life span of bands and musicians careers are very short. You try living off of that, it doesn’t go very far.
As the CD becomes more and more extinct legitimate downloads will be come even more key to an artist’s success.
What filesharing has done is turn a greater percentage of people into heavy music listeners, so much so that they could never in a million years afford to shell out $10-$18 dollars for every album they want to listen to.
Thats where I think services like Yahoo Music Unlimited, Rhapsody, and Emusic come in. Yahoo and Rhapsody are great services but they are under the shackles of Microsoft’s DRM and won’t play on Ipods. Emusic doesn’t have an extensive enough catalog.
A monthly unlimited music subscription without DRM for heavy music listeners and the ability to buy tracks ala carte for those who aren’t would be a great solution.
Free file trading sites suck and take way too much time (unless you are in college) There is a definite value in these subscription services in that they allow you to have access to almost all published music on demand and don’t have to bullshit around with limewire or IRC. Not to mention that you are actually paying someone for the work that they do.
I personally use Yahoo and love their streaming service, but wish they’d come up with a DRM free download subscription plan.
The recording industry is the biggest bunch of old men crybabies one can ever meet.
They have abused both artists and their customers and have lived high on the hog for ever.
Well the game is over.
Technology bypasses your control.
Most people have no trouble supporting artists it is the record companies they have trouble with.
Most artists only see income on tours on the road.
Think of it - with digital music you can sell music 24 hours a day with little cost - no factories , no covers , no blanks , no shipping and no record stores to share it with.
And this is 24 hours a day.
Nickle and dime people to death like the banks with service charges.
And you can promote smaller artists at little cost to boot.
The game is over. Get used to it.
“I stand at the other side of the fence.. for free!”
I assume that you pirate music. If this assumption is correct then, while not being paid, you feel the need to justify what is classifiable as theft. You gain financially by concluding (quite falsely) that there is absolutely nothing wrong with music piracy.
That’s a good article Ernesto, thanks for taking the time to analyse all those studies.
Very interesting, supports many of my theories as well. I still have one theory that needs to be proven :)
I think the downloading might have increased the sale in used records. If you feel like the album wasn’t as good as you expected or if you just want to buy the record instead of “stealing” it, there is a good chance that you buy it used since they cost less.
I myself have been buying more used CDs in the past two or three years. I have the album on my computer and when I find it almost as good as new, but for half the price or less, I feel like; “yeah, why not buy it, it was pretty good after all”.
Thing now is that since it’s used, it only count ones as sold. If I would later re-sell it and some else would buy it, the statistics still say that only one CD was ever bought. It’s just a theory, but I feel it has some context =)
I actually run a distribution company we wholesale music CD’s to indie record stores. And we have been up and running since 2000. It was only when downloading became fully available that CD sales truely dropped and we saw a big change.. This is according to us and to the stores.. You argue that it allows people to sample the music more by downloading. This is the duty of a RECORD LABEL to promote its bands, artists via samplers, 1 or 2 mp3’s, free radio listening stations, press to radio, CD SAMPLERS, videoclips etc.. If a band does not have a label then it is up to the band to try and play as many shows as possible or to do whatever needed to spread their name around. I and if you ask any record label and indie store can confirm to you that CD sales have dropped greatly.
SO AGAIN IF YOU ARGUE IT ALLOWS PEOPLE TO SAMPLE MORE SONGS WELL YOU CAN GO TO A LABELS WEBSITE OR A BANDS WEBSITE DOWNLOAD AN MP3 AND SEE IF YOU LIKE IT. SIMILAR TO BOOKS YOU GO TO A BOOK STORE BROWSE THROUGH FOR A FEW MINUTES IF YOU LIKE YOU BUY. TO BE ABLE TO FULLY DOWNLOAD AN ALBUM IS LIKE SAYING I WILL READ THIS BOOK IN THE BOOKSTORE AND THEN BUY IT AFTER(THIS I AM SURE NEVER HAPPENS)
Stuart wrote:
My point in the article is that piracy is not just about financial gain. And no, I don’t pirate anything, so it is more than just some kind of a cognitive dissonance process.
Chris wrote:
Free file-sharing sites suck? Maybe you oughta cash in that KaZaA / AOL combo package you seem to have going on and step up to the plate with the rest of the big boys.
Limewire & IRC”? Pfft please, I just ate breakfast. LAst time I checked the site was called “TorrentFreak,” as in BitTorrent, for a reason…..
BitTorrent + OINK = MUSIC HEAVEN
Try it sometime, you just may be so surprised you’ll want to go back to file-sharing “college”
Nice article BTW Big E,
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