Prof Says No Sales Loss from Piracy

HBS prof finds file-sharing downloads have no effect on album sales

While the recording industry continues to crack down on illegal music downloads, blaming them for the recent fall in album sales, one Harvard professor argues that they may not matter.

In a study recently published in the Journal of Political Economy, Felix Oberholzer-Gee, an associate professor at Harvard Business School, concludes that file-sharing downloads “have an effect on sales that is statistically indistinguishable from zero.”

He and his co-author, University of Kansas professor Koleman Strumpf, analyzed the sales of albums released on European school holidays, when they were more likely to be available on global file-sharing networks.

Albums released on holidays would be downloaded more, according to Strumpf. But the pair found no corresponding decline in sales among the albums that were more accessible online.

“Regardless of how easy [an album] is to get on file-sharing networks,” said Strumpf, “it doesn’t have much effect on album sales.”

However, their claims drew fire from the Recording Industry Association of America (RIAA), the trade group representing the U.S. recording industry.

When the first draft of the paper was released in 2004 before it underwent academic review, said Strumpf, “the RIAA reacted a couple times, and they were not very happy.”

The RIAA blasted the study in a 2004 press release, calling the results “inconsistent with virtually every other study done by academics and research analysts.”

Other academics have also questioned Oberholzer-Gee and Strumpf’s results.

In a study published in the June 2006 issue of the University of Chicago’s Journal of Law and Economics, University of Texas at Dallas Professor Stan J. Liebowitz found “a fairly close linkage between changes in file sharing and changes in record sales.”

“Overall, I don’t agree with [Oberholzer-Gee and Strumpf’s] results,” said Liebowitz in an interview yesterday. “They make several factual statements about the industry that are just not correct.”

In identifying potential flaws, Liebowitz argued that the sales of individual records analyzed by the study might not reflect the industry as a whole.

He also emphasized that his own study’s findings contradict the pair’s results.

“Although it’s a big black box if you don’t get the same data,” he said, “they claim no relationship between month-to-month file sharing and record sales, while I find a significant negative relationship.”

“I find that the genres that are downloaded the least have the smallest decline in sales, and, in some cases, an increase,” he added.

Strumpf and Liebowitz also disagree over the reasons behind the recent decline in album sales. Unit sales have fallen 14 percent since 2002, according to Nielsen SoundScan.

Strumpf attributed that decline to a shift in focus among retailers and consumers from CDs to DVDs, as well as a move in the music industry back to a singles-based business.

Liebowitz’s paper contends that “explanations, other than file sharing, for the recent decline in record sales seem to have little or no support.”

Oberholzer-Gee could not be reached for comment. A spokesperson for the RIAA declined to comment on the record.