Economists Felix Oberholzer-Gee and Koleman Strumpf have just released a new Harvard Business School working paper called File Sharing and Copyright that raises some important points about file sharing, copyright, and the net benefits to society. The paper, which includes a helpful survey of the prior economic studies on the impact of file sharing, includes the following:
1. The data indicates that file sharing has not discouraged creativity, as the evidence shows significant increases in cultural production. The authors note that:
Overall production figures for the creative industries appear to be consistent with this view that file sharing has not discouraged artists and publishers. While album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published (Nielsen SoundScan, 2008). Even if file sharing were the reason that sales have fallen, the new technology does not appear to have exacted a toll on the quantity of music produced. Obviously, it would be nice to adjust output for differences in quality, but we are not aware of any research that has tackled this question.
Similar trends can be seen in other creative industries. For example, the worldwide number of feature films produced each year has increased from 3,807 in 2003 to 4,989 in 2007 (Screen Digest, 2004 and 2008). Countries where film piracy is rampant have typically increased production. This is true in South Korea (80 to 124), India (877 to 1164), and China (140 to 402). During this period, U.S. feature film production has increased from 459 feature films in 2003 to 590 in 2007 (MPAA, 2007).
Given the increase in artistic production along with the greater public access conclude that "weaker copyright protection, it seems, has benefited society." This is consistent with the authors' view that weaker copyright is "uambiguously desirable if it does not lessen the incentives of artists and entertainment companies to produce new works."
2. The paper takes on several longstanding myths about the economic effects of file sharing, noting that many downloaded songs do not represent a lost sale, some mashups may increase the market for the original work, and the entertainment industry can still steer consumer attention to particular artists (which results in more sales and downloads).
3. The authors' point out that file sharing may not result in reduced incentives to create if the willingness to pay for "complements" increases. They point to rising income from performances or author speaking tours as obvious examples of income that may be enhanced through file sharing. In particular, they focus on a study that concluded that demands for concerts increased due to file sharing and that concert prices have steadily risen during the file sharing era. Moreover, the authors' canvass the literature on the effects of file sharing on music sales, confirming that the "results are decidedly mixed."
The authors were one of the first to challenge the early claims about the effects of file sharing. Years later, many other economists have followed suit (including the study funded by Industry Canada). This latest paper does a nice job of expanding the discussion, by using the data to examine incentives for creativity and the effects on aggregate creator and industry income.