WILL MP3 DOWNLOADS ANNIHILATE THE RECORD INDUSTRY? THE EVIDENCE SO FAR
Advances in the Study of Entrepreneurship, Innovation & Economic Growth
I would like to thank Mukesh Chugh for research assistance. After Napster exploded into the public's consciousness in 1999, concerns with MP3 downloads, their impact on the recording industry, and the industry's attempt to thwart such downloads, have been in the news almost continuously. The Napster case was only the most public front in a wide ranging battle between the entertainment industries (movies and records) and the millions of individuals who were using the Internet to download,
... authorization, copyrighted works, but who otherwise were thought to be the putative customers of these industries. This fight has spilled over into the political arena. The manifestations were seen in a bill proposed by Representative Howard Berman from California in 2002 that would have allowed copyright owners to engage with impunity in otherwise illegal activities "disabling, interfering with, blocking, diverting, or otherwise impairing" the "unauthorized" distribution of copyrighted items. 1 The bill did attempt to restrict these otherwise illegal activities to those that do not "alter, delete, or otherwise impair the integrity of any computer file or data residing on the computer of a file trader" but it still amounted to authorizing 'hacking' behavior that is disallowed in other venues. This is only a small part in a flurry of activities taken by the copyright-based industries to protect themselves against what they see as online pilfering of their products. At the center of the current controversy is the fear by the recording industry that great damage, perhaps even mortal damage, will be done to them if they do not stop online 'trading' of music files, a fear I refer to as the "annihilation hypothesis". The movie industry is taking a backseat to the record industry for the moment because the size of the files needed to view movies make online movie trading prohibitively time consuming at current connection speeds and because most users do not yet have the equipment to write DVDs. Central to any discussion of the annihilation hypothesis should be empirical examinations of the industry. Yet there have been few studies attempting to examine the impact of MP3 downloads. In the Napster case the recording industry presented evidence purporting to demonstrate that MP3 downloads were harmful to record sales and Napster presented evidence purporting to demonstrate that online filesharing was beneficial to the record companies. 2 1 The text of the bill along with its justification can be found at: http://www.house.gov/berman/pr072502.htm. 2 Napster and its experts claimed that file-sharing merely allowed the customers of record companies to 'sample' or 'try out' songs in advance of purchase. With the better information provided by such sampling, customers would be more likely, according to Napster's experts, to purchase the songs that they knew they liked. The recording industry and its experts, on the other hand, claimed that file sharing substituted for the purchase of a record and that the downloading of MP3s would and had decreased the purchase of records.