Don't Blame File-Sharing For Slumping CD Sales, Study Says

Exhaustive Harvard analysis says music industry's claims don't add up.

While file-sharing continues to be blamed by the recording industry for slumping music sales, a new study conducted by the Harvard Business School shows that downloading has only a negligible effect on CD sales.

"Downloads have an effect on sales which is statistically indistinguishable from zero," concludes the report, conducted with the University of North Carolina Chapel Hill. "Moreover, [the effect of file-sharing] is of moderate economic significance and is inconsistent with claims that file-sharing is the primary reason for the recent decline in music sales."

Unlike many reports that have popped up on both sides of the file-sharing debate, Harvard's study is not a survey. Surveys may inaccurately reflect real behavior, especially when they require a participant to admit to an illegal activity, such as copyright infringement. Harvard's statistical analysis is based on observing 1.75 million downloads from 160 popular albums during 17 weeks in the fall of 2002 and determining whether sales of an album decline more sharply when that album is downloaded more often. So thorough was the research that minute factors, such as network congestion, song length and international school holidays, were taken into consideration.

According to the worst-case scenario of the researchers' findings, it takes 5,000 downloads to reduce sales of an album by one copy. Using those estimates, CD sales would have decreased by 2 million copies from 2000 to 2002, when actually they dipped by 139 million copies. Meanwhile, for the top 25 percent of best-selling albums (with more than 600,000 copies sold), downloading went hand-in-hand with increased album sales.

The Recording Industry Association of America, which claims the number of CDs sold in the U.S. fell from 940 million in 2000 to 800 million in 2002, uses different statistics to support its longstanding claim that downloading is a detriment. No one argues that the best-selling albums are also the most downloaded, or that the best-selling albums aren't selling as well as they used to. Sales of the top 10 best-selling albums of 2000 totaled 60 million copies. A year later, they fell to 40 million. In 2002, the sum was 33 million.

If file-sharing had a negative effect on sales, the Harvard study postulates, the motion picture, software and video game industries — whose files are also heavily traded, albeit not as much as music files — would also be suffering. But sales in those arenas have been increasing. The Motion Picture Association of America reported U.S. box offices took in $9.5 billion, the second largest total in its history. DVD sales continue to increase, and the recording industry announced that CD sales are actually up 14 percent in 2004 compared with the same period last year.

The report doesn't say that file-sharing is good for music sales. However, it points out that while some people may download albums instead of buying them, widespread use of file-sharing networks may foster discussions about new music in online chat rooms, which could then promote sales. Some downloaders may also use file-sharing to sample new music, making purchases depending on whether they like what they hear.

The report also speculates on why the recording industry is in such dire straits, citing a decreasing number of album releases, competition from other media (movies, video games), a reduction in the variety of music on the radio, and a possible consumer backlash against the RIAA's ongoing litigation campaign. A similar sales slump was recorded in the late 1970s and early 1980s, while sales figures in the 1990s may be abnormally high since many music consumers replaced their vinyl and cassette collections with CDs.

For complete digital music coverage, check out the Digital Music Reports.