For more than a decade researchers have been looking into the effects of music piracy on the revenues of the record industry, with mixed results.
None of these researchers, however, used a large sample of accurate download statistics from a BitTorrent tracker to examine this topic. This missing element motivated economist Robert Hammond, Assistant Professor at North Carolina State University, to conduct his own research.
In a paper titled “Profit Leak? Pre-Release File Sharing and the Music Industry” Hammond published his findings.
Between May 2010 and January 2011 the professor collected a variety of download statistics of new albums that were released on the largest private BitTorrent tracker dedicated to music. He then used this data in combination with sales numbers to construct a model that predicts what the causal effect of piracy on music sales is.
The results are unique in its kind and reveal that BitTorrent piracy causes an increase in album sales.
“I isolate the causal effect of file sharing of an album on its sales by exploiting exogenous variation in how widely available the album was prior to its official release date. The findings suggest that file sharing of an album benefits its sales. I don’t find any evidence of a negative effect in any specification, using any instrument,” Hammond concludes in his paper.
In total the sample includes 1,095 albums from 1,075 artists. The research focuses on albums that leaked before their official release. The music industry often states that “curbing pre-release piracy is a particular priority for the recording industry.” These releases are also the focus of criminal proceedings against pirate sites both in the US and the UK.
However, according to the research, sales may actually be hurt by going after these sites. Hammond’s findings suggest that piracy itself acts as a form of advertising similar to radio play and media campaigns, where more downloads result in a moderate increase in sales.
That said, the effect described in the paper is a moderate one. Taking all factors into account Hammond finds that an album that leaks a month in advance results in 59.6 additional sales.
To some degree the results are surprising, as other studies have found a negative relation between music piracy and sales. However, Hammond notes that none of these studies had access to such detailed and precise download statistics which make it possible to go beyond the usual correlation.
Also, unlike several other studies, Hammond’s focuses on album releases instead of single songs.
“I focus on how file sharing of an individual album helps or hurts that album’s sales. The question of interest here is whether an individual artist should expect her sales to decline given wider pre-release availability of the album in file-sharing networks. I find that the answer is no.”
Another unique finding reported in the paper is that popular artists profit more from piracy than less established acts. For smaller artists there is no effect of pre-release piracy on sales. This contradicts older research. Hammond, however, notes that his data is richer than in the other studies, and therefore more accurate.
In addition, we’d argue that the focus on pre-releases may also account for the missing effect on new artists.
While the reported data appears to be solid, the question has to be asked how representative the data set is for all music piracy on BitTorrent. The private tracker in question has more than 150,000 users, who are almost exclusively more than average music fans.
Overall, the paper offers a unique and unprecedented analysis of BitTorrent piracy on music sales. It clearly disputes the music industry argument that pre-release piracy hurts album sales, and suggests that BitTorrent piracy can act as promotion.