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Gov’t Commissioned Study Finds P2P Downloaders Buy More Music

A newly study commissioned by Industry Canada, which includes some of the most extensive surveying to date of the Canadian population on music purchasing habits, finds what many have long suspected (though CRIA has denied) -  there is a positive correlation between peer-to-peer downloading and CD purchasing.  The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study For Industry Canada was conducted collaboratively by two professors from the University of London, Industry Canada, and Decima Research, who surveyed over 2,000 Canadians on their music downloading and purchasing habits.  The authors believe this is the first ever empirical study to employ representative microeconomic data.

The two key findings:

  • When assessing the P2P downloading population, there was "a strong positive relationship between P2P file sharing and CD purchasing.  That is, among Canadians actually engaged in it, P2P file sharing increases CD purchases." The study estimates that 12 additional P2P downloads per month increases music purchasing by 0.44 CDs per year.
  • When viewed in the aggreggate (ie. the entire Canadian population), there is no direct relationship between P2P file sharing and CD purchases in Canada.  According to the study authors, "the analysis of the entire Canadian population does not uncover either a positive or negative relationship between the number of files downloaded from P2P networks and CDs purchased. That is, we find no direct evidence to suggest that the net effect of P2P file sharing on CD purchasing is either positive or negative for Canada as a whole."

Bear in mind, this is not a study with a particular desired outcome or sponsor – it is the government commissioning independent research to help it make better policy decisions.  The results of that research, consistent with earlier Canadian Heritage sponsored study by Shelley Stein-Sacks that refused to blame P2P for the industry's problems, is that P2P actually increases CD sales since those that download also tend to buy more music. 
The study also addresses a number of other frequently discussed issues.  It finds that:

  • there was no statistically significant relationship between P2P downloads and digital download purchases from stores such as iTunes.  In other words, P2P downloads neither increase nor decrease the likelihood of such purchases.
  • CD prices have little impact on CD purchases, though there was some indirect evidence of pricing being factored into those that P2P file share.
  • people who buy digital downloads are not less likely to buy CDs
  • people who own MP3 players are less likely to buy CDs
  • people who buy large numbers of DVDs, videogames, cinema and concert tickets also buy a higher number of CDs.  In other words, consumers of entertainment consume more entertainment, not less.
  • household income has no statistically significant effect on CD or digital download purchases

The study is a tough read for the non-economist, yet given the breadth of its data and the importance of its findings, it is a must-read.  When combined with the income generated from the private copying levy, much of which is seemingly linked to P2P copying, it becomes increasingly clear that the industry has benefited from P2P and that there is no "emergency" that necessitates legislative intervention.

Update: Jack Kapica of the Globe and Mail provides additional coverage of the study and its policy implications. 

187 Comments

  1. Wouldn’t it be prudent to hear what Graham Henderson from the Canadian Recording Industry Association (CRIA) has to say about this? He is, after all, an authority on these matters. LOL…

  2. Mr.?
    Buy a CD?

    People still do that? Weird. Kind of like paying for sunshine. Huh?

  3. Dwight Williams says:

    I still do it…
    It’s the same as with books: people – including me – like to hold something real and physical in their own hands.

  4. I don’t think the headline matches the content. The study doesn’t find that P2P downloaders buy more music. The study finds “no direct evidence to suggest that the net effect of P2P file sharing on CD purchasing is either positive or negative for Canada as a whole.”

    It would be more accurate to say that *more active* P2P dowloaders buy more music (than less active dowloaders).

  5. Dave Blizzard says:

    Clearly there is a strong correlation between people who like music and those who buy it and download it. The music industry screwed up big time when they could have taken advantage of the fact that a huge population were into Napster. If they had taken advantage of that market, they could be in tune with the real world.

  6. Andrew Wiebe says:

    The CD Advantage
    People will often buy CDs because they can rip it in the quality they want.

    Downloading music off of iTunes results in relative low quality and .mp3s that you can only use on iTunes.

    When you buy your own music you can rip it to a “lossless” format, ie. No loss of quality, or V0 which is the best format based on file size and quality. Very low quality loss for a very smaller file size.

    Programs like limewire and etc. have a low selection of music and low quality. Therefore if someone actually enjoys music (yes, P2Pers do) they will often buy a CD of it so they can have it in whatever format that they want.

    Also the cases are cool.

  7. I’m not surprised at all by this finding. I myself use P2P, and since I started I’ve invested more $ in buying CDs than at any point previously. There’s 3 main reasons for this:

    1- It’s the absolute best way to “preview” an artist’s work. If I like it, then I can justify buying it outright; both to support the artist & add to my collection. Us music lovers usually find having a mere digital copy inadequate. Think of it as taking a potential new car purchase for a test drive.
    2- I’ve discovered so many artists that I would never have heard otherwise. I mean, it’s absolutely mind-boggling how many great artists there are out there, yet you never hear them mentioned on the radio. (That’s a whole other topic right there) Good P2P communities are full of music savvy members who take great pains & pride to discover & recommend talent for all to enjoy. (Especially on the best site ever, OiNK.cd, but that’s another story…) Because of P2P, I’m now the proud owner of some artist’s entire music catologues (both Cd & vinyl in some cases) by artists I only would have discovered through P2P.
    3- For reasons mentioned above, I like to share my discoveries with other users, getting them into other artists & such. The way to do this is to buy their works & then share it. I’ve basically had enough comments from fellow users to verify a few hundred album sales by them over the last while, due to me exposing little-known artists via P2P.

    P2P could is a powerful tool that the CRIA (and similar groups) should embrace & try to work with, not against. The profit could be huge. Hopefully this will happen sometime in the future: with bands like Nine Inch Nails & Radiohead taking steps in that direction, in addition to this report, maybe they’ll take notice.

  8. NT
    I have not read the article, but I would hope that the chosen sample was well representative. Age groups as well as access to various mediums would definitely need to be addressed. For example, there are many people who have no internet access at all in many age groups. There are many who personally would rather not have a portable media device. Many people prefer cassette tapes instead of CDs (better driving functionality). Some people own nothing but a record player. Many others, even those with internet access find that MP3 format removes almost all of the enjoyment out of the music because of the source coding (eliminating frequency bands we ‘cannot hear’).

    I would say that it is very hard to make a claim that the internet/music marriage _hurts_ the industry. Particularly because it increases the popularity factor of bands, allows relatively small bands easier means to distribute, and allows for further social networking possibilities.

    Above, Andrew Wiebe and Woodenhead are both very correct in saying that the norm of audio quality in internet-distributed standards is quite low.

    Personally, if I like music that I download (either with permission or illegally [gawk] ) then I will usually go out of my way to see artists live and purchase their CD directly with fewer profits going to the middle-man and corporate entities.

  9. From the article: “In terms of the actual sample, the data contains 1,005 respondents who declared that they were P2P downloaders and 1,095 that declared not to have engaged in P2P downloading.”

    So it’s saying people who claim to have purchased music also claim to download more. People who pay for music are more likely to admit to downloading music illegally.

  10. Declining CD sales
    One possible (at least for some portion of the big buyers of CDs) explanation is that people are buying fewer CDs because with P2P access, they are better able to determine in advance what they will or will not like. So instead of buying some number of CDs on speculation because no practical means of thorough sampling existed, as was the case before the internet, they are now buying fewer CDs because they have identified those they know they won’t like through this sampling opportunity from P2P access. And maybe this reduction in buying is mitigated in part by having discovered some CDs through sampling that they would never have considered without P2P.

  11. I agree with and second everything Woodenhead said- I’ve purchased many cds by artists I would not have heard of, if not for P2P sharing. Maybe if cds were cheap I’d buy unfamiliar albums just to try them, but I’m not spending $12+ for a potential beverage coaster. The RIAA and cohorts needs to get a clue and realize that P2P networks just give their products free advertising.

    The music industry has shot itself in the foot in many ways, if they want to solve their problems they need to stop blaming file sharing and look at their own poor decisions. I think it’s obvious that cd prices in the US are kept artificially inflated or fixed- prices of dvds, books, computer games, etc, generally drop quite a bit after initial release, while the prices of most individual cds have hardly budged after a decade. I would buy more cds if older releases would eventually drop to the $4-$8 range like most dvds do. Another stupid thing the music industry has done is constantly hammer us with a small sample of mostly mediocre acts. Hearing the same single for months doesn’t make me run out and buy albums, it makes me turn off my radio. Even if I liked the song, I’m too sick of it to listen to it ever again. Ignoring the content, even the overall quality of music releases is typically awful. The sound is mastered for maximum loudness, sacrificing sound quality (see YouTube for more about the “loudness wars”). The resulting album is compressed, volume normalized, clipped, and has distortion in some cases. In other words, it just sounds bad. I hate paying for a cd that sounds like poorly encoded lossy format.

  12. M. Sc, MD
    I haven’t read the research paper, but as it is described above, this does *not* mean that p2p file sharing doesn’t reduce CD purchases. It could, for example, be the case that people who are downloading music also are more interested in music, and thus are buying more CDs than other people. This would make “music interest” a confounding factor, and it is not a very far fetched scenario. A more music interested person would download more music but would also by more CDs. If he didn’t download music, it could very well be the case that he would buy even more CDs. You really have to correlate for this kind of confounding factors. But how should it be done? There are not many other ways to judge interest in music other than measuring how many CDs you buy or how much music you download.

  13. Why would this study be considered accurate at all ? Was there any actual confirmation of the claims made by the people surveyed ?

    For example why should those who downloaded thru P2P software not claim that they did in fact purchase CDs as well. Why confess to being a pirate, when it is just as easy to BE a pirate and then claim that your activities do not really alter your end behaviour. See its really a victim-less situation. I’m merely ‘auditioning’ the product before purchase.

    Somehow I find this highly doubtful. If you have the milk already, why would you consider paying the dairy for it. Never mind going to the extent of buying the cow. Especially since the ‘new’ standard is largely 192kbs for MP3 files, and at that bitrate I hear that it is very hard to tell the difference between ‘real ‘ and not-so-much.

    Not that I really know anything about this downloading thingy everyone is talking about. Just what I heard.

  14. Music lover says:

    HM
    I used to use P2P to discover new artists – artists that couldn’t be found at the local record store or which I heard through some other media. Many times I search for the song lyrics and then download files from P2P untill I find the correct song and the artist. After that I usually bought the CD if I liked the artist.

    After RIAA/MPAA started the guilt game and suing people, I started boycoting the whole industry. Now I hate the sight of CD’s because they represent the evil and greed in this world. I will no longer pay for their overpriced product nor use them untill prices are cut a minimum of 50%. Some artists have seen the light and started their own production and distribution through the internet. This is the way of the future, DEATH TO RECORD COMPANIES!

  15. Edward Palonek says:

    CD Prices
    Hello,

    The bottom line is simple, with the current distribution systems in place the prices of CDs are over $10. When the prices come down to compete with the online market then allot less people will infringe on copyrights laws.

    Thanks

    Edward Palonek
    [ link ]

  16. new music models needed
    How about moving to the new breed of record labels, that are in business together with the fans of the music… http://www.sellaband.com for instance.

    Very interesting report. There will always be a % of people who download/listen/steal via p2p, and others who download/listen/buy the cd. p2p is like quality control for music, so you don’t go and buy an album on the basis of one song and then find out the rest are crap.

    I don’t agree with the prices of cd’s being lowered too much, as it costs alot of money to create the music, and then even more money to distribute/advertise/manufacture etc. Record co’s just need to be fairer to the artists and the fans, and then fans will be fairer with the record co’s. I don’t want them to go out of business as then there would be alot less music, but they need to work together with the public and artists, not against them.

  17. I agree. I download music because I love music and I cannot live without it. Furthermore I love researching new artists and new genres. I actually increased my quota of CDs buying because of that. I do not like commercial music such as the kind you hear on the radio stations or the one you find in music stores. P2P network is the best place to try it before buying it, what’s wrong with that? Most of the material I download at the end I consider garbage and discard it which it means I’m not “satisfied” with it. Anything I buy if I’m not satisfied I can bring it back, but not music or movies or books.

  18. THAT STUDY IS A FAKE!!!
    THAT STUDY IS DEFINITELY A FAKE! A BIG FAKE! IT IS NOT TRUE! P2P IS KILLING US! ALL OF YOU WILL BE SENTENCED! DISTRIBUTING OF THIS STUDY WILL BE DETERMINED AS A PIRACY ITSELF! HOWGH!

  19. Dorkmaster Flek says:

    This seems to be a very important study to me, if only because a) it was commissioned by the government, and b) it wasn\’t created with a specific set of interests in mind like some of the so-called \”studies\” produced by the industry lobby groups. I really hope this puts the pressure on the government (I almost said Harper, but really the whole government is being bullied here) to push back on the CRIA and listen to Canadian artists and consumers.

  20. Edward Palonek says:

    Edward Palonek
    I’m not sure if attacking the integrity of the study without any solid proof is a good idea at all. However this study does seem to correspond with what the general opinion is.
    Thanks

    Edward Palonek @ Palonek.ca

  21. another Doug says:

    @ Doug
    “Why would this study be considered accurate at all ? Was there any actual confirmation of the claims made by the people surveyed ?”

    Yes, the masses are lying to keep Graham and his owners from getting the money they deserve. I mean c’mon it’s obviously the entire survey is a conspiracy to rob the record labels and should not be held in the same light as a totally unbiased report. Like those bought and paid for by the recording industry. Now the guys who do those reports, wow, they are completly unbiased, and never word the questions so they recieve the answers they require. Nor do they work they demographics to ensure their results. Nope.

    How could an obviously biased report from Industry Canada be taken seriously when you have several unbased reports from the CRIA et all that simple state they are losing billions and billions of dollars.

  22. Tim Grantham says:

    Michael Geist’s conclusion above, “it becomes increasingly clear that the industry has benefited from P2P”, is thrown into question by an obvious logical error on his part, an error usually described as comparing apples to oranges.

    When it comes to understanding the impact of peer-to-peer file-sharing on CD sales, the comparison to make is not between those who choose to engage in peer-to-peer file-sharing and those who don’t, but between before peer-to-peer file-sharing existed and after. One would have to know if the number of CDs bought in Canada went down after peer-to-peer file sharing became available.

    The Industry Canada study does not address this question. All it says is that there is *currently* no correlation, either negative or positive, between the amount of peer-to-peer file-sharing in Canada and Canadian sales of CDs.

    As Geist says, the study does show an indirect positive correlation between the price of a CD and how often peer-to-peer file sharers download music from the CD. One could reasonably hypothesize, therefore, that though peer-to-peer file sharers are more likely to buy CDs, the average price of the CDs they buy will be lower than the average price of all CDs bought in Canada and perhaps even lower than the average price paid for CDs bought by those who don’t share files. The price of a CD generally correlates positively to its profit margin, so the music publishers would prefer that the average price be higher.

    Personally, I believe in the principle that taking and not paying for a product that cost something to make and sell is both immoral and counter-productive. But practically, I recognize that file sharing cannot be effectively prevented. So there’s only so much music publishers can do through legislation. They should devote more of their energies to accepting the reality of the Internet and finding ways to use it to their advantage.

  23. Just thought you might want to correct this, but the study results as stated in the abstract were actually “12 P2P downloaded songs, music purchases increase by 0.44 CDs.”

    not 1 P2P download.

    although 12 to .44 is still a hardy number

  24. Unwarranted conclusions
    The debate on P2P-CD sales is difficult to track. As the study’s authors write themselves, there are certainly two factors at play: sampling (P2P -> +CD) and substitution (P2P -> -CD).

    I went back to the study. On page 24 the authors write that “[R]egressions based on cross-sectional data cannot prove causality; instead they only show an association between variables.” Later they acknowledge that simultaneous equations systems (“capable” of dealing with circular causality) would have required “instrumental variables” (indicators that are unambigously related to only one of the two inter-related variables) that were not available. Too bad.

    But then, how can the authors conclude that 12 P2P downloads per year increase CD purchases by 0.44? (!!) (rather than say an increase of .44 CD per year increase the likelihood of P2P downloads by 12).

    I suppose that everybody will agree that:

    1) the more I like music, the more I am likely to sample
    2) the more I like music, the more I am likely to acquire music

    So there is no surprise if we find a positive correlation between P2P and purchases.

    The question is whether the positive sampling effect on CD sales is larger than the negative substitution effect. Possible, but frankly, I doubt it. And the aforementioned study doesn’t provide a satiwfactory answer.

  25. Andersen and Frenz says:

    Response from authors:
    [ link ]

  26. Edward Palonek says:

    Edward Palonek
    Edward Palonek

    “So there is no surprise if we find a positive correlation between P2P and purchases.

    The question is whether the positive sampling effect on CD sales is larger than the negative substitution effect. Possible, but frankly, I doubt it. And the aforementioned study doesn’t provide a satisfactory answer.”

    Well said. Subject closed.
    [ link ]
    Palonek

  27. Show this to the French Government!
    Did you heard about Mr. Sarkozy’s new plans (banning p2p users from the internet)?
    [ link ]
    Somebody should show this study for them…

  28. Mr.
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  29. Mr
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  30. Jorge Alvelais says:

    Canada is not the whole world
    Canada is just a little part of the world, with their own customs, education and economic level; but the effects of file-sharing is beyond Canada\\\’s boundaries.
    Canada is not representative of what\\\’s happening troughout the world.
    On the other hand, P2P is only one of the problems: we have direct download from virtual hardrives (Rapidshare, Megaupload, etc.) and chain-copying (users copy the same mp3-CD a lot of times).
    Furthermore, in Mexico, Spain, Colombia, and many other countries you can find a lot of people at the streets selling mp3-CDs at very low prices.

  31. Misquote
    You said:
    “The study estimates that 12 additional P2P downloads per month increases music purchasing by 0.44 CDs per year.”

    They said:
    “For an increase in the average number of P2P downloads per month of 1 (ie., 2.718282/2.718282), the number of CD purchases per year will increase by (1.212/2.718282 =) 0.44.”

    Which is:
    The study estimates that 1 additional P2P downloads per month (not 12 additional P2P downloads per month) increases music purchasing by 0.44 CDs per year.

  32. Misquote
    You said:
    \”The study estimates that 12 additional P2P downloads per month increases music purchasing by 0.44 CDs per year.\”
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    rosy

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  33. Boycott
    I think alot of people forget that theres been a boycott going on the music industry for many years since Napster. You cant treat people like shit and have them want to go out an buy your stuff. Im sorry it dosnt work that way. Secondly if people havent notice theres been a insurgents in indie music. People have been staying away big music while looking at indie music which is just better anyways. Another thing is Piracy is becoming a scapegoat. If your product dosnt sell well. Its not because it just a bad or sucky product. Its because of priacy. This seem like same thing that happen with home taping. If your sells are low its because of home taping. The turth is these what to take people civil rights away and turn are world into a police state over there copyrights. Im sorry but people civil rights are more important. Its time that these company to change there business model or go out of business. Its called adapt or die and its one the rule for biology and a free market.

  34. Very useful files search engine. http://Indexoffiles.com is a search engine designed to search files in various file sharing and uploading sites.

  35. Just a quick note: A great number of these people using P2P are kids who have very little of their own money. I posit that just because they download an album online, it doesn’t mean they would have purchased it otherwise. They simply can’t afford it. Downloading an album does not necessarily equate to the loss of a sale, in other words. Combine that scenario with the sampling argument, and I find it very easy to believe that P2P users spend more $ on music & related merchandise than non-P2P users.

    As a concrete personal example, I downloaded Nine Inch Nails – Ghosts I-IV for free via P2P. I later purchased the physical copy, which cost me well over $300. I’m hardly the cause of the decline of the music industry’s profits, and feel that I should not be treated as a criminal.

    [url=http://www.demonbaby.com/blog/2007/10/when-pigs-fly-death-of-oink-birth-of.html]Here’s a great read from an industry insider.[/url]

  36. Your title is false
    Please correct your post’s title. It is contrary to the findings. You quote those yourself.

    “When viewed in the aggreggate (ie. the entire Canadian population), there is no direct relationship between P2P file sharing and CD purchases in Canada. “

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