Click & swap, download all your music, but CDs will still sell: Report

But what if the industry is wrong, and file sharing is not hurting record sales?

It might seem counterintuitive, but that is the conclusion reached by two economists who released a draft last week of the first study that makes a rigorous economic comparison of directly observed activity on file-sharing networks and music buying.

‘‘Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates,’’ write its authors, Felix Oberholzer-Gee of the Harvard Business School and Koleman S. Strumpf of the University of North Carolina at Chapel Hill.

The industry has reacted with the kind of flustered consternation that the White House might display if Richard A. Clarke showed up at a Rose Garden tea party. Last week, the Recording Industry Association of America sent out three versions of a six-page response to the study.

The problem with the industry view, Oberholzer-Gee and Strumpf say, is that it is not supported by evidence. Previous studies have failed because they tend to depend on surveys, and the authors contend that surveys of illegal activity are not trustworthy. ‘‘Those who agree to have their Internet behavior discussed or monitored are unlikely to be representative of all Internet users,’’ the authors wrote.

Instead, they analyzed the direct data of music downloaders over a 17-week period in fall 2002 and compared that activity with actual music purchases during that time. Using complex mathematical formulas, they determined that spikes in downloading had almost no discernible effect on sales. Even under their worst-case example, ‘‘it would take 5,000 downloads to reduce the sales of an album by one copy,’’ they wrote. ‘‘After annualizing, this would imply a yearly sales loss of two million albums, which is virtually rounding error’’ given that 803 million records were sold in 2002. Sales dropped by 139 million albums from 2000 to 2002.

‘‘While downloads occur on a vast scale, most users are likely individuals who would not have bought the album even in the absence of file sharing,’’ the professors wrote.

In an interview, Oberholzer-Gee said previous research assumed that every download could be thought of as a lost sale. In fact, he said, most downloaders were drawn to free music and were unlikely to spend $18 on a CD.

‘‘Say I offer you a free flight to Florida,’’ he asks. ‘‘How likely is it that you will go to Florida? It is very likely, because the price is free.’’ If there were no free ticket, that trip to Florida would be much less likely, he said. Similarly, free music might draw all kinds of people, but ‘‘it doesn’t mean that these people would buy CDs at $18,’’ he said.

The most popular albums bought are also the most popular downloads, so the researchers looked for anomalous rises in downloading activity that they might compare to sales activity. They found one such spike, Oberholzer-Gee said, during a German school holiday that occurred during the time they studied. Germany is second to the US in making files available for downloading, supplying about 15 percent of online music files, he said.

During the vacation, students who were home with time on their hands flooded the Internet with new files, which in turn spurred new downloading activity. —(NYT)