codicil to the mp3 debate

I found this great paper here on the subject: “Will MP3 downloads Annihilate the Record Industry? The Evidence so Far”. It’s by a Stan J. Liebowitz, School of Management, University of Texas at Dallas, who is not so far as I am aware a sublow fan posting on the woebot thread, but lets give him some ear time nevertheless. Here’s some nuggets:

“Although the decline in singles has been a long time in the making, there is little doubt that 1998 marked a major acceleration of that trend. The bottom began to fall out of the single?s market a year before Napster came into existence.”

{Album sales} increased by a factor of 2.5 {1973 to 2002}, from 400 million to approximately one billion units. Yearly sales of albums per capita (defined over the population between ages 10 and 60) increased almost as much, from 2.7 albums in 1973 to over 5 during much of the 1990s. Since the population (as defined) only increased by 37% over this period, total and per capita measures cannot greatly differ.”

“The second feature of interest is the nonlinearity of the plot. There are at least four dips in sales prior to the current dip which is underway. These dips occurred in 1978-82, 1984-86, 1991, and 1994-97 with the current dip having begun after 1999. The fact that sales are currently falling, by itself, would not appear to be a cause for alarm, since this has happened several times in the past, only to be followed by further sales increases.”

“During the period of growth of cassettes, however, there was also a large increase in the sales of prerecorded albums. Clearly, the existence of cassette recorder/players seems to have had a positive overall impact on record producers, although we can not say that the growth might not have been more robust had the recording (copying) potential of cassettes been removed.”

“Changes in videogame software sales and changes in the sale of albums {seem to be related}. If we limit ourselves to the period before 2000, before any impacts of MP3 downloads, there is a positive correlation of .16, which indicates that the two move together and not separately. This relationship also fails to support the claim that videogames are particularly close substitutes for CDs.”

… This seems to derail one of my arguments!

“I believe that the movement in the market to but a single recording format, and the maturation of the portable and automobile markets imply that sales would at least have leveled off, with or without MP3s. Whether they would have fallen is less clear, but since purchases of dual recording formats would no longer have been necessary, there is some possibility of a decline in sales.”

“The decline in album sales per capita since 1999, as illustrated in Table 4, is 1.41 units, but the decline in the album subcategory of ?cassettes? is .50, leading to a decline in albums, net of cassettes, of .91 units. A three year decline totaling .91 albums per person excluding cassettes, would still be the largest and steepest on record, but not extraordinarily so. Since there are no other potential causes of this decline that held up under examination, we must conclude that MP3 downloads are harming the industry.

Matt’s mea culpa is justified! But hang on…

“If the analysis in this paper is correct, MP3 downloads are causing significant harm to the record industry. It is not clear, however, whether such downloading in our current legal environment will cause a mortal blow to the industry. I suspect that the worst damage to the industry is behind us, but we will know soon enough as new data are made available.”

So, make of that what you will. But I would caution you not to take this paper as a stick with which to beat the mp3 bloggers. Here’s another nugget from here, which is where I found the first paper:

“In 1982 the International Federation for the Phonographic Industry (IFPI) – the record industry advocacy group – estimated piracy at 11% of the total market in North America, 21% in Latin America, 30% in Africa and 66% in Asia. In 2000 it estimated (PDF) that 36% of the disks and cassettes sold across the globe were pirated – around 1.8 billion items.”

In other words, the clear and present danger to the record industry is commercial piracy. And the Liebovitz paper indicates that the level of mp3-driven falls in record sales are nowhere near this level of over one third of discs sold. He can tell there’s probably some negative impact on the industry which can be directly attributable to mp3s and not the other factors I discussed previously. But he can’t tell if that negative impact is particularly severe, and he certainly doesn’t think mp3s are responsible for the whole decline:

“What, then, is the impact of MP3 downloading? Given the enormity of the whole MP3 download enterprise it should be easy to recognize its impact on album sales if its impact is large. What do I mean by ?large?? If each MP3 song substituted for a purchased song, as has often been claimed by the record industry in the case of blank tapes, we would clearly have a large impact. If each two MP3s substituted for one purchased song, that would be large. Even if each four MP3s substituted for one purchased song, that too should probably be considered a impact large. If, on the other hand, each hundred MP3s substituted for one purchased song, that would not, in my opinion, qualify as a ?large? impact and it would be most difficult to measure, given all the factors influencing the sales of albums.”

He decides that the impact isn’t miniscule, but it’s not large — not large enough to account for the decline of record sales:

“Given the enormous number of MP3 downloads (if the numbers can be taken seriously), which are themselves an incomplete portion of the entire MP3 phenomenon, it seems safe to say that the CD equivalent of MP3 downloads is at least equal to the entire sales market for CDs. If MP3s downloads replaced sales at a 1 to 1 ratio, there would be no CD market to speak of. In that case we would be talking about a drop in CDs of 5 units, not .89 units. If MP3 downloads converted at 4:1 the album market would have dropped by 25%. Removing the impact of the decline in cassettes, which seems appropriate, it would appear that the conversion rate at the moment is on the order of 5:1 or 6:1. Not large but not small.”

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