Illegal downloading

The Herald reports that most music is bought by the very same people who illegally download a lot of tracks. It says

plans … to crack down on illegal downloaders by threatening to cut their internet connections … could harm the music industry by punishing its core customers.

Now that seems like a stretch. The key here is to figure out a plausible counterfactual to the present situation. The Herald seems to be suggesting that, if these people didn’t have access to an internet connection then they’d lose all interest in music. Which is pretty unlikely! Let’s think about what might be a more plausible counterfactual.

Suppose there are two kinds of music: paid for and illegal. If illegal becomes more expensive all of a sudden – because of the risk of your internet being cut off – then two things happen. First, you’ll probably consume less music overall, because it’s more expensive now. Secondly, you’ll switch out some of your illegally obtained music for paid music because the two are substitutes. So a first look suggests that the music industry would probably be better off if the cost of illegal downloads went up, even if everyone who buys also downloads.

Of course, there could be other effects which confound the initial analysis. It is possible that a reduction in goodwill towards the music companies would shift people towards preferring illegally downloaded music. That might offset the price effects.

It may also be that, over time, demand for artists illegal and legally distributed tracks is complementary. For example, I doubt that Britney Spears needs any exposure via free downloads to boost her record sales. However, an emerging artist may gain sales as people hear of them through costless online downloads. Of course, there’s nothing to stop that artist from distributing some tracks for free in order to gain recognition. Many musicians already do that through their own websites and MP3 blogs. Indeed, the existence of illegal downloads just prevents artists like Britney from maximising their profits without offering any new means of distribution to emerging artists.

It’s hard to say which of these effects will prevail without some empirical evidence, but it’ll definitely be interesting to look at the figures once the UK has started to crack down hard.

7 replies
  1. Moz
    Moz says:

    Are you considering the effect on the winners in the current music industry changes as well as the losers? You’re taking the view of the plastic trinket sellers and don’t seem to have thought about the artists and fans at all. “buying music” does not just mean purchasing a license token from a retailer, it can also mean paying an artist to perform or buying a license directly from them. And how does free or public domain music fit into this scheme?

    It’ll be at least as interesting to see how the new laws do on natural justice. We’re hearing more cases now of people falsely accused of infringement (and the proposed process is built on guilt on accusation) as well as accusations against music distributers (both for infringement, like Lily Allen’s unlicensed (viz, pirate or illegal) mix tapes being hosted by her record company; and for theft – claiming copyright for material they have no rights to). The widespread abuse of takedown notices on youtube and myspace makes me think it’ll be another farce in the same sense, but with nasty legal consequences.

    I think it will mostly be a PR effort – the old music industry enhancing its reputation for being a wunch of bankers.

  2. rauparaha
    rauparaha says:

    Yes, I’m really just considering whether the music industry would be better off here. However, supposing that we could somehow perfectly enforce IP, there is nothing to prevent artists from selling direct or giving away music for free. I think it likely that illegal downloads and concert tickets, for example, are complements. But an artist struggling for recognition isn’t forced to charge for either of these. I’m just a bit unsure about how infringing IP benefits anyone in the music industry.

    The way regulations are being implemented does seem rather strange though, I agree. Having said that, I’m not sure how one would go about enforcing IP rights without being awfully heavy handed about it.

  3. Moz
    Moz says:

    What stops artists giving away their music is that as soon as they sign to any label, that label is likely to claim ownership of all their music whether that is the case or not. So while in theory the artists can still give away their music, they’re likely to find it removed from youtube, myspace etc and if they persist they will lose their account. In some cases the “sign with a label” step is not required – a friend donated limited usage rights for a song to a charity compilation and had this problem with that track ever afterward. Again, the distinction between ownership and usage rights is not well understood by many “copyright experts” and music industry PR people.

    So one important part of any law is the penalty for misuse. The takedown system right now as no penalty in practice, so it’s widely abused. Until someone (preferably a major label) gets soundly smacked for false claims they have every incentive to keep making them.

  4. fibby
    fibby says:

    Secondly, you’ll switch out some of your illegally obtained music for free music because the two are substitutes.

    I’m intrigued by your decision to use the word “free” to mean the opposite of both gratis and libre.

  5. Pervach
    Pervach says:

    “there are two kinds of music: paid for and illegal[…] the two are substitutes.”

    On this point, i disagree. I believe there is a more significant relationionship between the two as complimentary goods. Consumers have a limited budget to spend on paid songs that they like, the utility of which is increased by sampling illegal music to better identify what music they prefer.

    People are reluctant to buy things if they don’t yet know whether they like it or not. Once they know that they like a song (or find one that they like which they would not otherwise have discovered) and predict that they will listen to it numerous times, most people (from my personal observations) buy the paid version. They do this for various reasons – social and moral pressure, convenience, legitimacy value, fashion.

    So if illegal music becomes more expensive, people discover less music that appeals to them and are less certain about what they do know, so the utility of paid music for them declines, so demand for paid music DECREASES.

    Paid music – illegal music: complimentary goods
    Paid music – live performance: complimentary goods
    illegal music – live performance: complimentary goods

    Paid music – radio/music channels: substitutes.
    (listeners sacrifice choosing the music they want to hear, convenience, fashion for price, without social/moral/legitimacy consequences)

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