New research: music piracy should not be a “concern for copyright holders”

European Commission study looks at 16,000 users across five countries.

by Cyrus Farivar

Less than two weeks after a study showing that Internet movie piracy displaces digital film sales, new research by two European Commission researchers arrived at the opposite conclusion with respect to music sales. In short, they find that “digital music piracy should not be viewed as a growing concern for copyright holders in the digital era. In addition, our results indicate that new music consumption channels such as online streaming positively affect copyrights owners.”

The two authors, Luis Aguiar and Bertin Martens, are from the EU's Information Society Unit (under the Joint Research Centre) based in Seville, Spain. The duo described their study and conclusions in a new 40-page paper published this month.

"Although there is trespassing of private property rights (copyrights), there is unlikely to be much harm done on digital music revenues," Aguiar and Martens write.

"This result, however, must be interpreted in the context of a still evolving music industry. It is in particular important to note that music consumption in physical format has until recently accounted for the lion’s share of total music revenues. If piracy leads to substantial sales displacement of music in physical format, then its effect on the overall music industry revenues may well still be negative."

Ars reached out to the authors, the Recording Industry Association of America (RIAA), and the Motion Picture Association of America (MPAA). The authors and the MPAA did not immediately respond. The RIAA declined to comment.

Spaniards love piracy sites

To conduct the study, the researchers used data from Nielsen NetView (an Internet audience measurement service) to examine detailed behavior of 5,000 Internet users from each of the European Union’s five largest economies: France, Germany, Italy, Spain, and the United Kingdom.

“The most striking differences appear when looking at the determinants of download. Compared to Germany, Spain show 230 percent more clicks on illegal downloading websites. Italy presents an important difference of 134 percent while the UK and France have 43 percent and 35 percent more clicks respectively. France stands out when it comes to streaming, with 150 percent more clicks than Germany. Spaniards have 20 percent more clicks than the Germans, while Italians have 25 percent less. The UK presents a small difference with Germany in terms of streaming, with only nine percent more clicks.

There are various possible explanations for these country differences. First, unobservable cultural characteristics could explain the use of different types of music consumption channels. Second, market forces, and in particular the limited access to legal digital purchasing websites, could influence the illegal downloading activity of consumers.”

The study relies on two different quantitative formulas, which the authors say are far better than the self-reported qualitative surveys related studies use. The authors also suggest what we’ve long-suspected, which is the lack of a legal alternative for a given piece of content may have a lot to do with whether or not its pirated.

As we’ve pointed out previously, given the fragmented nature of the European Union content market, it’s still true that content availability varies significantly across the soon-to-be 28-member bloc. For example, the iTunes Stores in Austria, Spain, and Denmark may not have a specific TV show availability, while Latvia, Belgium, and Germany do.

A marginal difference

Furthermore, the authors also note that while music revenues have fallen steadily since 1999, last month the International Federation of the Phonographic Industry (IFPI) reported its 2012 global recorded music revenue is up for the first time in 14 years. It rose 0.3 percent during 2011, reaching $16.5 billion. The pair concludes:

“After using several approaches to deal with the endogeneity of downloading and streaming, our results show no evidence of sales displacement. Overall, our different estimates show relatively stable, positive, and low elasticities of legal purchases with respect to both illegal downloading and legal streaming. Across specifications, the estimates of δ suggest elasticities of about 0.02 between clicks on illegal downloading websites and legal purchases websites. If this estimate is given a causal interpretation, it means that clicks on legal purchase websites would have been two percent lower in the absence of illegal downloading websites. Specific country estimates show that for Spain and Italy the elasticity is zero, while it is close to 0.04 for France and the UK. All of these results suggest that the vast majority of the music that is consumed illegally by the individuals in our sample would not have been legally purchased if illegal downloading websites were not available to them.”

UPDATE March 20, 2:20pm CT: The International Federation of the Phonographic Industry has come out with its own response to the study, calling it "flawed, misleading and disconnected from commercial reality."