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April 5, 2004
Volume 4, Issue 3

Study: P2P Does Not Hurt CD Sales

Kazaa Owner Welcomes Survey Findings

A new study from Harvard Business School and the University of North Carolina compares downloads of music files using peer-to-peer (P2P) software and store sales of CDs. While previous surveys relied on participant comments, this study used actual file-sharing data comprising 1.75 million downloads culled from two OpenNap servers during 17 weeks in the fall of 2002. 

The authors, Harvard's Felix Oberholzer-Gee and UNC's Koleman Strumpf, concluded that file sharing had no effect on the sale of popular CDs. 

According to the study, 31% of individuals who download music live in the US, 13% in Germany, 11% in Italy, 8% in Japan, and 7% in France. US file sharers are particularly active, downloading 36% of all files. Only 45% of US file downloads come from computers in the US, however: 16% come from Germany, 7% from Canada, 6% from Italy, and 4% from the UK.

3 million simultaneous users typically shared an average of 500 million files through Kazaa alone during the period, with an average of 1.5 million using the second then most popular software WinMX, and most people who shared files appeared to be individuals who would not have bought the albums they downloaded.

Even in the most pessimistic statistical model, 5,000 downloads would be required to reduce the sales of an album by a single copy. File sharing therefore accounted for a reduction in CD sales of only 2 million in 2002, while total CD sales declined by 139 million copies from 2000 to 2002.

The effect of file sharing on sales depends on the popularity of a release, according to the researchers.  For the least popular albums (with sales of less than 36,000 copies) the authors found a small negative effect. 

In contrast, for the top 25% of albums (with sales of more than 600,000 copies) they found a positive effect: 150 downloads increased sales by one copy, significant because the profitability of the music industry depends almost entirely on the success of its most popular albums.

This study tracked downloads of songs on 680 popular albums included in Billboard Charts.  Although these albums did well commercially (the average release sold more than 150,000 copies), more than 50% of the songs on these albums were never downloaded.  75% of the songs were downloaded no more than two times, 90% were downloaded fewer than 11 times.

Songs from albums that were on the top current Billboard Charts were most likely to be downloaded.  Alternative albums were the second most popular musical genre among file sharers, followed by hard rock and catalogue albums. Least likely to be downloaded were songs in the categories jazz, Latin, and new artists.

Welcome One Love Channel

Please warmly welcome the One Love Channel (OLC) to the Content Group. We look forward to providing valuable services to this newest DCIA Member and supporting its contributions to commercial development of the distributed computing industry.

OLC is owned and operated by Blue Mountain Interactive Ltd., a Jamaican owned company, whose principal partners include Lloyd Evans, Othniel Harris, and Trevor Baillie.

OLC distributes licensed and DRM-protected reggae music and videos via P2P. OLC retains global rights for the music it distributes. Its initial aim is to become the largest source of reggae and dancehall music on the Internet.

Ras Records, Sonic Sounds, and Buffalo Music Productions represent current exemplary licensors to OLC. Since its December 2003 launch, OLC has attracted more than 2 million unique visitors and had more than 55 million hits. See this week's Industry News for more.

Report from CEO Marty Lafferty

We are providing input to the Senate and House Judiciary Committees regarding the S 2237 PIRATE Act and HR 4077 Piracy Deterrence & Education Act. We believe that the "carrot" of legitimate licensed content redistribution must be more fully supported before the "stick" of enforcement is revisited as these bills propose.

The problems the bills seek to address had their roots years ago as entertainment industries failed to take basic technological precautions to protect their digital content from being easily copied and freely redistributed on the Internet.

Leading content rights holders implemented no such measures as CD or DVD copy-protection, dual-use protection for consumer electronics devices and PCs to prevent unauthorized copying and uploading, or upload-prevention technologies integrated into operating systems, browsers, e-mail, instant messaging, and search applications.

Against this background, HR 4077 threatens to take criminalization of non-commercial conduct, at the behest of large, rich corporate entertainment interests, to unprecedented heights. S 2237 threatens to order federal prosecutors to sideline their core tasks of investigating and prosecuting serious crimes and combating terrorism to become plaintiff's attorneys enforcing private property rights of major music labels and movie studios.

At the same time, these bills would reward the entertainment industries, not only for neglecting the protection of their own products, but also for their collective boycotting of new innovative start-up software firms and their failure to license willing P2P suppliers as legitimate retail resellers.

The Harvard Business School/University of North Carolina study covered in this week's DCINFO negates any claim that these bills are needed on economic grounds.  If file sharing is proven to be harmless, then these proposals are pointless.  Worse, they would divert prosecutorial resources to ensure that Americans live the lives of copyright purists, just for principle.

Likewise, the continuing emphasis on pornography in these bills does not reflect its far greater presence elsewhere on the Web, nor the much more serious dangers of criminally obscene content available on websites and in chat-rooms. And it is so dismissive of P2P providers' efforts to work with law enforcement and to incorporate parental control software into their products that it starts to take on the character of a red herring.

Both copyright infringement and exposure of children to pornography are real problems, and we condemn them. However, the entertainment industries' ceaseless chant of piracy and their unbalanced diversionary claim of pornography are not such issues as demand an inexorable tightening of the legislative screws on tens of millions of Americans, young and old, by an angry Congress.

The role of Congress, given its mission of promoting the public welfare, should be to encourage the entertainment industries to end their openly self-destructive and harmful boycott, and begin to license their content to consumers using distribution technologies that have already been adopted en masse. 

In particular, the Judiciary Committees should investigate whether the entertainment industries' refusal to license their content for legitimate distribution via mutually beneficial P2P business models serves, or undermines, the bedrock purpose for which the Constitution authorizes copyright: "To promote the Progress of Science and useful Arts" for the public benefit.

With respect to an additional role for the Department of Justice, already burdened with the threats of terrorism as well as a wide range of pernicious crimes, it simply passes understanding that the prosecutorial might of the United States of America should be swung against consumers, including children and youth, for the non-commercial sharing of music files.

How much more beneficial and constructive it would be for the US and all of its citizens, and for the entertainment companies themselves and their shareholders, if as the next step in development of the digital distribution marketplace, Congress were to adopt an approach such as this:

"To be effective on the date of initial publishing of a copyrighted work, any rights holder who wishes to monetize the digital redistribution of such work on the Internet and otherwise, shall be required to provide in advance the terms and conditions on a non-discriminatory wholesale basis to all distributors, including software suppliers and individuals, who may wish to engage in such redistribution."

Once the law has been modified to ensure that the "carrot" of legitimate licensed content redistribution can be supported given the realities of technical advancements of the Internet, then the "stick" of enforcement could reasonably be revisited, with more appropriate requirements for commercial parties to bear increased responsibilities for protecting the new forms of commerce so enabled.

Canada Rules File Sharing is Legal

A Canadian federal court ruled last Wednesday that it is legal to share copyrighted music over the Internet. The judge drew a distinction between actively distributing digital songs and passively making such content available on a shared computer directory, adding that the latter is not against existing copyright law.

"I cannot see a real difference between a library that places photocopy machines in a room full of copyrighted material and a computer user that places a personal copy [of a music file] on a shared directory linked to a P2P service," the judge wrote in the decision.

The court also denied a motion from the Canadian Recording Industry Association (CRIA) that would have forced five ISPs to identify 29 "John and Jane Does" accused by the major record labels of copyright infringement. All except one of those anonymous file-sharers were users of Kazaa.

Nikki Hemming, CEO of Kazaa owner Sharman Networks Ltd. said, "We hope that this decision marks a turning point away from litigation and towards cooperation between peer-to-peer (P2P) providers and the entertainment industries."

"It's fair to say that the ISP and user groups are very pleased with the (Canadian) decision, and the US copyright community is outraged," said Sarah Deutsch, VP & Associate General Counsel of Verizon Communications.

Greg Bildson, COO of P2P software provider LimeWire, said Canada is taking a "much more intelligent" approach to the issue.

The CRIA has vowed to appeal the decision.

Copyright 2007 Distributed Computing Industry Association
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