Debating the Industry Canada P2P Study

Industry Canada's release earlier this month of an independent study on the impact of P2P file sharing generated considerable public interest and some debate from economists around the world who were provided with complete access to all the raw data.  First out of the blocks was Stan Liebowitz, a Texas economics professor who immediately pronounced that "without going into details of the study we can ask whether this result is even remotely plausible" and that "the result is so counterintuitive that I think it fails the laugh test." While those comments generated headlines, once Liebowitz had a chance to actually view the study and the data, he dropped that language and acknowledged that some of the initial criticism was too harsh.  His primary criticism is that:

the authors present two sets of results, one for the entire sample and one just for downloaders. It makes little or no sense to look only at downloaders and when they do so the authors find a result that is not only implausible but is actually is impossible to be true, given their data. When the appropriate full sample is used the results are still likely to be biased upward because the authors do not fully account for the impact of music interest, which impacts both downloading and purchasing.

Birgitte Andersen, one of the authors of the study, has now posted a response to Liebowitz. 
Andersen responds that Liebowitz's analysis has a weak empirical underpinning, emphasizing that the IC study features micro-economic data rather than Liebowitz's macro-economic data.  Andersen notes that:

Macro data can describe a situation or some relationships at the aggregate level, but such data are limited when it comes to shedding light on explanations of the situation. For this we need micro-data, as we need to understand how the micro behaviour underpin the creation of the situation at the aggregate level.

Andersen continues by addressing Liebowitz's criticisms, characterizing some of the content on his site as "hugely misleading."

Attracting somewhat less attention was a response from Australia by Dr. George Barker and Richard Tooth. That response, which a footnote notes was supported by a grant from the Canadian Recording Industry Association (indeed CRIA has cited Barker's work with approval in the past), repeats many of the Liebowitz claims about simultaneity, even though Liebowitz later acknowleged that those concerns were overstated.  The authors also argue that:

The most striking problem with the study’s conclusion is that the authors have assumed that the positive relationship observed between CD sales and P2P downloads is because downloading increases CD sales. The more plausible explanation is likely to be that those who download more are more interested in a variety of music and so purchase more CDs.

Andersen did not respond to the Barker/Tooth paper, perhaps because they misstate the conclusions in the study.  The study did not say that P2P is the cause of increased purchases, but rather than there is a correlation between the two.  Indeed, it seems reasonable to assume that downloaders are more interested in music.  The fact that they still purchase more music, notwithstanding the fact that it is available via P2P networks, contradicts CRIA's claims that it cannot "compete with free" and merits the attention it has received.


  1. So, if I understand Prof Liebowitz’s statement correctly, the 4 CDs per downloader increase was offset by a drop of 8 CDs in the rest of the general population sample, giving a net drop of between 3 and 4 CDs for the population. What I did not find a reference to was if the units sold samples for the total population was based on RIAA (CRIA) member companies only, or on the total industry, including the independent labels and artists. One of the items I picked up from the IC study was that the CD purchases from the downloading portion of the sample had a heavier representation in the independents.

  2. My own experience mirrors the results of the study. Out of my prime teen CD buying years, it has been through p2p, blogs, etc that has got me purchasing music again. But this exposure has lead me to more independent bands who are perhaps not represented by the CRIA. I also purchase the majority of my music online through eMusic. I’m curious if digital sales have been taken into account. Of course we’ll buy music we like even though there are free sources. Remember this thing called the radio?

  3. The remarkable result is not that people who are interested in music download music and buy music. The remarkable result is that people who download music buy more music.

    Of course, this isn’t remarkable at all. It’s much easier to explore music, find artists/albums/etc that one likes and then buy it than it is to just buy and hope (pre-Napster era).

  4. The whole “people who download music buy more music” argument is a statistical fallacy. Of course, there’s a certain segment of the population that spends a great portion of their time and money on music than the rest of people. Thus these people tend to both buy more and download more music. However, it is not the downloading of music that leads to these extra purchases.

    Post hoc ergo propter hoc.

    I would in fact argue that, absent music downloading, these same people would spend an even great portion of their money on music buying (although I do agree that the one-to-one substitution of downloading to purchasing is an absurd estimate, although the CRIA has never asserted that line of argument).

  5. doesn’t matter
    The whole argument is redundant when the consuming public has so long ago given up on the major music companies based on their greed brash tacts and ancient format. Who buys CDs ANY way? The money is being made by those creative few who have walked away from the old cookie cutter machine and are doing it on their own and selling music for dollar amounts people are willing to pay. It’s a new world Mr Liebowitz and the RIAA, so get over it already.

  6. So satellite radio has nothing to do with music sales? A good friend of mine stopped collecting music (buying and downloading) after he was gifted a satellite radio. What is the CRIA\\\’s position on the effect satellite radio has on music sales?

  7. radio, sales., et al
    radio stations pay an annual fee to the record companies to be able to play the music they (ironically) receive from the record companies – this can be waived for public or college radio stations, but otherwise, radio is a pay to play environment.

    I would have to say that the “unlicensed music hoarders” who download all the millions of mp3 the riaa and cria complain about are a very small segment of the music purchasing population, as it requires time, effort, and techincal savvy. Given the uncertain and unpredictable state of P2P
    connectivity and bandwidth, I can see how this would drive this trend they are seeing. (People
    get frustrated and just go buy the album) – but the online music market does tend to be a niche,
    or hard-to-find music scene.

  8. I used to buy music all the time, I pay a tax on blank Cd’s and downloading here in Canada is legal as far as I understand. I have not bought a CD in over 5 years nor have I downloaded one.
    I always thought that music was for entertainment, but for me it is the greed of the music industry that has turned me off completely. I still listen to my old records and (add free) radio and I would be happy to buy music again if I knew my money went to the artists and NOT the recording industry.

    I wonder if I would show up in the statistics…..

  9. Mr
    Because of sharing of music (Friends, P2P or my favourite – Pandora) I have purchased 10 times more CDs over the last couple of years than I did in the previous 10 years. Regrettably because I am in Oz Pandora is no longer available to me. I have just recently purchased 15 CDs based on my now expanded musical tastes. I would never had even heard of these bands without some help. So given a totally unreliable sample of one (me) – the report is correct. The music industry is incredibly short sited.

  10. Gen X er
    For Gen X ers (by the true term of the last third of the baby boom), we have the cash to buy CDs but not always the ability to determine what is worth buying. I have used P2Ps for years to find new bands, new genres, and even rediscover older acts that I somehow missed in my first childhood. As one testimonial, I have been buying a significantly increased number of CDs in the last 5 years because my musical tastes have expanded, and I now know what I want to buy without the risk of being disappointed. I have adapted to the new digital world of music, and hopefully the music industry will also – but it is ultimately all about control – something that they feel they are losing – and the reality is that they will!

  11. i have used p2p for many years i find that with p2p it gives the option to own music or movies without the need for extra tax and packaging i think the recording industry see that they are losing out on sales of normal cd’s and dvd’s but we here in canada is a free country i think p2p’s are the greatest thing since sliced bread also if you think about it you can buy blank cd’s and dvd’s for much less then paying the same amount for one cd or dvd ie: 100 cd’s $35 100 dvds’s $35 for one cd $20-$35 for one dvd $20- $30 i think our right to use p2p’s is valid and is the cria has a problem well your out numbered