Academic journal article International Social Science Review

The Impact of Digital Piracy on Music Sales: A Cross-Country Analysis

Academic journal article International Social Science Review

The Impact of Digital Piracy on Music Sales: A Cross-Country Analysis

Article excerpt

Introduction

The record industry has led listeners to believe that the recent rise in digital piracy has hurt music sales. Digital music piracy, or the unlawful downloading of copyrighted music, has been a controversial topic since 1998 when Shawn Fanning created Napster. Though the MP3 file, short for MPEG-1 Audio Layer-3, was originally developed in 1987, Napster represented the first mainstream and user-friendly program to transfer and download these files. Napster, a peer-to-peer (P2P) program, allowed online users to connect with one another and swap copyrighted music, videos, and other files contained on their computers, thus providing a way to get free music online. (1) Since music artists and record companies were uncompensated when consumers downloaded these music files, the act of downloading "free music" became known as digital music piracy. Market statistics compiled by the International Federation of the Phonographic Industry (IFPI) show that worldwide sales of music fell at the turn of the century and P2P networks were immediately blamed for the industry's bad fortunes.

According to the IFPI, the Recording Industry Association of America (RIAA), and many other record industry representatives, illegal music downloads have had a negative impact on recent music sales. (2) In an effort to prevent substantial losses, the recording industry took P2P software companies to court; threats of legal action were extended to individuals who downloaded music files illegally. This study is not designed to discuss the legal consequences of music piracy, nor question the legality of downloading music. Instead, it analyzes the impact that digital piracy might have on the music industry in terms of record sales. (3)

Digital music piracy is an example of end-user piracy, in which consumers can obtain music for their own personal enjoyment without physical transactions. End-user piracy can be more difficult to detect than commercial piracy since goods never physically exchange consumers' hands. The music industry is not alone in its difficulties with digital piracy; the movie and video game industries also claim that piracy has caused a substantial decrease in the sales of their products. (4) These entertainment industries account for a small, but valuable, percentage of the U.S. Gross Domestic Product (GDP), and play a large role in fulfilling the entertainment needs of individuals. A high consumer value is assigned to the entertainment industries and their products because those industries consume much of our leisure time. According to recent U.S. Census Bureau statistics on media usage and consumer spending, the average person in the United States spends $50.17 annually on recorded music and listens to approximately three hours of music (recorded and radio) daily. (5) The RIAA adds that the entertainment industry is valuable to the American economy because that industry enjoys a positive balance of trade. (6) Citing U.S. Department of Commerce statistics, the RIAA claims that the "copyright industries" account for six percent of the nation's GDP. (7) Furthermore, these various entertainment industries are essential to the growth of other industries such as advertisement, consumer electronics, and retail. (8) Thus, the impact of declining sales in the entertainment industry can easily have a negative impact on the economic well-being of other industries.

Digitalization has successfully transformed the image of the entertainment industry. Although judicial litigation found Napster liable for aiding in end-user piracy and subsequently caused it to sell off its assets in a bankruptcy auction, the online file-sharing service left a legacy of P2P technology which still exists today. (9) In recent years, other P2P networks have continued where Napster left off. Kazaa and Morpheus gained popularity after Napster's demise, continuing to allow users to trade music online. More recently, BitTorrent revolutionized P2P software by establishing a means whereby transferring large quantities of data can be achieved without the need for large amounts of storage space. …

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