[FoRK] Grand Unified Theory of File Sharing

Contempt for Meatheads jbone at place.org
Mon Apr 12 07:30:52 PDT 2004


This is a pretty cogent overview but it misses identifying a third 
constituency involved in the decline of sales besides "Free-riders" and 
"Samplers" --- namely the "Pissed-Off Customer."  I think the 
"Pissed-Off Customer" actually goes a long way to explaining the drop 
in CD sales over the last few years.  And, IMHO, this GUTFS + POC 
(Grand Unified Theory of File Sharing with Pissed-Off Customers) does 
indeed make strong predictions for the future:  as long as the lawsuits 
continue, CD sales will continue to decline irrespective of filesharing 
activity.

I'm a pissed-off customer.  I used to consume a tremendous amount of 
recorded music and related media products.  As the recording industry 
initiated and escalated its war on its on customers --- between the 
labels saying "no" to the collective request for technological and 
business model change to a growing emphasis on making the music world a 
marketing-driven monoculture --- I resolved to NOT BE A CUSTOMER 
ANYMORE.  Goodwill depleted, replaced by ill-will.  I'm not giving the 
fuckers another bloody cent.  Period.  IMHO, it's our RESPONSIBILITY as 
participants in a free society to NOT reward (and, indeed, punish) the 
capitalist equivalent of antisocial behavior that the labels are 
engaging in with their customers these days.

I don't have a problem with the idea that labels have a right to profit 
from their efforts.  I think their perception of the threat from 
filesharing is --- as pointed out --- misguided;  and I think their 
approach to new technology and a new market landscape has failed 
utterly.  Their traditional business model rested on assumptions that 
are no longer valid.  Subscription, ala carte, and more, less-heavily 
promoted artists serving narrow micromarkets and subcultures are going 
to be required for the "music industry" (aside from artists themselves) 
to remain relevant.

 From Freedom to Tinker.  Drill for links to the mentioned studies:

--

	http://www.freedom-to-tinker.com/archives/000574.html

A Grand Unified Theory of Filesharing

Recently we've seen several studies of the impact of filesharing on CD 
sales. We have enough data now to draw some (very) preliminary 
conclusions, assuming the studies are correct. Despite the apparent 
contradictions between the various studies, I think there is a 
plausible theory that can explain them all – a Grand Unified Theory of 
Filesharing.

First, let's review the three main results that have to be explained.


     * Survey-based studies, which ask people whether they use the 
Internet, whether (and how much) they use filesharing, and how many CDs 
they buy, find that people who fileshare buy fewer CDs.
     * The recent econometric study by Oberholzer and Strumpf, based on 
per-album time-series data on filesharing activity, CD sales, and other 
factors, found that filesharing has little or no effect on CD sales.
     * Eric Boorstin's study found, controlling for differences in 
personal income, that there is a strong positive correlation between 
Internet usage and CD purchasing. This held true for all age groups, 
except the 15-24 group, for whom Internet usage correlates negatively 
with CD purchasing.

(It's undisputed that CD sales have dropped sharply in recent years, 
but there are several plausible causes for that drop. That's a topic 
for another day. Here, I’ll assume only that filesharing is not the 
only cause of the sales drop, so that we don’t need filesharing to 
explain the drop.)

The Grand Unified Theory explains the study results by breaking down 
the users of filesharing into two subpopulations, which I will call 
Free-riders and Samplers.

Free-riders are generally young. They have few if any moral qualms 
about filesharing, and they tend to assume that others feel the same 
way. They use filesharing to accumulate libraries of music, as an 
alternative to buying CDs.

Samplers are generally older and more risk-averse. They are highly 
engaged with cultural products of all sorts. They are morally 
conflicted about filesharing, and use it mostly to download songs that 
either aren't for sale, or that they don't value enough to pay for. 
They buy music that they really like, and filesharing causes them to 
find more music they like, so it tends to increase their CD purchases.

Now let's look at how the theory explains the studies' results.

In survey-based studies, Free-riders admit to filesharing and to buying 
fewer CDs because of their filesharing. But Samplers are reluctant to 
confess their filesharing to a stranger, being more risk-averse and 
more attuned to the dubious moral status of filesharing (not to mention 
its illegality). The result is that Free-riders are overcounted in 
survey-based studies, and Samplers are undercounted, so survey-based 
studies find that filesharing depresses CD sales.

The Oberholzer and Strumpf study measured the actual impact of both 
Free-riders and Samplers, and found that the lost sales caused by 
Free-riders are balanced by the increased sales due to Samplers.

The Boorstin study had different results for different age groups. His 
15-24 age group was mostly Free-riders, who buy fewer CDs when they 
have Internet access, because their filesharing substitutes for 
purchases. His older age groups were mostly Samplers, who buy more CDs 
because of filesharing, and who are also, because of their high level 
of cultural engagement, predisposed to both Internet usage and CD 
purchasing. Therefore he found that young Internet users buy fewer CDs, 
while older Internet users buy a lot more.

So there you have it: a theory that explains the study results, and 
that seems plausible (to me, at least). Of course, there are lots of 
caveats here. One or more of the studies might be wrong; or the studies 
might be right but the theory wrong. But bear with me for a bit longer 
as I explore the possible consequences of the theory.

The theory says that the net effect of filesharing on CD sales is 
roughly zero, because of a balance between the negative impact of the 
Free-riders and the positive impact of the Samplers. But what happens 
in the future? It all depends on what happens to today's Free-riders.

Perhaps today's Free-riders will mature into Samplers, to be replaced 
by a new generation of Free-riders, so that the effects of the two 
groups continue in a rough balance. Or perhaps today's Free-riders, 
never having known anything else, will keep Free-riding as they get 
older, and the balance will tip toward Free-riders.

It's also worth noting that the theory does not predict whether 
(illegal, free) filesharing will reduce online sales of music. Probably 
the answer depends on what the online alternatives look like, and how 
convenient they are to use.

So the theory can explain the present situation, but it doesn't make 
strong predictions about the future; or, if you prefer, the theory 
comes in several flavors, which differ in their future predictions. If 
we had a better handle on what makes one person a Free-rider and 
another a Sampler, we could make better predictions.


[Thanks to Eric Boorstin and Andrew Appel for helping me develop and 
refine these ideas.]



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