Pitfalls in Measuring the Impact of File-sharing on the Sound Recording Market

Abstract

This paper surveys the extant literature on the impact of file -sharing on the recording industry. It begins by examining the theory behind the impact of file-sharing. One novelty from this analysis is the finding that the effect of 'sampling' of copyrighted materials can be expected to have a negative impact on copyright owners, quite the opposite of the impact normally assumed. Overall, although one can create hypothet i- cal situations where network effects might allow file-sharing to be beneficial to cop y- right owners, the expectation that file-sharing would harm copyright owners appears a far more realistic outcome. The analysis then turns to the empirical work that has been performed up to the time this paper was written. The various approaches are critiqued and compared. I posit some explanations for the variations in results and conclude that the evidence strongly suggests that file-sharing harms the sound recording industry. (JEL K0, L0, L5, L8) The sales of music CDs have fallen dramatically in the last few years. A leading candidate among possible causes of this decline is the recent rise in file-sharing. The recording industry has tried to stem this decline by suing or threatening to sue individuals heavily engaged in file sharing. These law suits have attracted a good deal of publicity and discussion. A rather influential school of thought has formed in opposition to the corporate players in thes e industries, and these lawsuits have provided fodder for their critiques of traditional copyright . 1 The motion picture industry has expressed concerns that it s sales are likely to suffer a similar fate to that of the sound recording industry if nothing is done to stem the unrestricted use of file-sharing software. Owners of advertising-based