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NPD Group Fails Basic Math: Data Shows P2P Users Spend Nearly 50% More on Music Than Non-P2P Users

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Thursday November 15, 2012
File sharing of music has been part of the Internet landscape for well over a decade, but the debate over its economic impact continues to rage. The issue has come to fore once again in recent weeks after Columbia University's American Assembly released an excerpt of a report that found that peer-to-peer users purchase 31 percent more downloads than non-P2P users. The NPD Group, which conducts industry analysis for the Recording Industry Association of America, quickly responded with data that purports to show that among music buyers, both P2P and non-P2P users spend about the same, though P2P users spend more on merchandise and concert tickets. The NPD Group dismisses the additional spending, arguing "it would be silly" to concluded the P2P promotes merchandise or ticket sales.

While there have since been responses from the American Assembly and further promotion of the NPD Group findings from the RIAA (along with coverage from CNET and TorrentFreak), no one seems to have picked up on the basic math error from NPD Group. The NPD Group post ironically starts with:

I often think you ought to have a license to publish data, especially these days, when misinterpreted statistics easily make their way to the blogosphere, and thus become truth.

Yet take a closer look at its own data in a chart that has been replicated throughout the blogosphere. 
Per-Capita-Spend2
It adds spending for physical CDs, paid downloads, and subscription fees for music buyers of both P2P users and non-P2P users aged 18-35: P2P users spend $62 per year, while non-P2P users spend $54. The chart lists the subtotal and then shows merchandise and concert ticket revenues, where P2P users spend far more ($52 to $20 for merchandise, $91 to $63 for concert tickets). The grand total is listed as $267 for P2P users and $191 for non-P2P users, a difference of 35.6 percent. 

Oddly, this chart contains math errors for both non-P2P users (the total should be $192 not $191) and P2P users (the total should be $268 not $267), though perhaps this is due to rounding errors from the original data. More important, however, is a bigger math error in the chart as NPD Group significantly understates the difference between P2P and non-P2P users. In arriving at the grand total, it adds all the categories (physical CDs, paid downloads, subscription fees, merchandise, and concert tickets) plus the sub-total. In other words, it double counts the physical CDs, paid downloads, and subscription fees. The actual grand total of the five categories of spending is $206 per year for P2P users and only $138 for non-P2P users for a difference of 49.3 percent. There is obvious irony in NPD Group talking about the need for a licence to publish data only to get its math wrong, yet the real significance is that few would credibly argue that a nearly 50% increase in spending by P2P users can be simply chalked up to unsupported claims that P2P usage had no impact on consumer purchasing behaviour.
Comments (29)add comment

Crockett said:

...
OK, so either the NPD purposefully misrepresented the data to bolster their claims or they are incompetent. Seems like another consistently stellar effort from the RIAA.

I found most amusing the assertion, "it would be silly" when faced with compelling data. Denial is a powerful tonic.
November 15, 2012

Taffer said:

Disregard!
The RIAA type folks don't get any money from merchandise and concert tickets; that's generally the only way bands can actually make money. No wonder they want you to ignore those figures.
November 15, 2012

sceptic said:

15% higher just for subtotal
Even just considering the subtotal (of items the RIAA gets money for), the P2P users spend 15% more.

If music were not available by P2P would their purchases drop to the non-P2P norm?
November 15, 2012

Greg said:

...
Because this is only correlational, it could be that spending money on music *causes* P2P downloading. Thus, the lesson the RIAA should be taking is that to discourage downloading, they need to stop selling music and merchandise.
November 15, 2012

Jason Rhinelander said:

Statistics or summaries?
To be fair, I think both you (Michael) and NPD are being a little quick to draw a conclusion here. Ignoring the failure in elementary school mathematics, all the statistics above show is that there is a correlation between P2P use and higher spending. The big issue is that this is only correlation, not (necessarily) causation. One possible explanation here (I'm not saying this is true, just hypothesizing) is that people spending more on music, especially spending more on concerts and merchandise, are younger, and younger people are also more comfortable using P2P software.

To put the problem another way, imagine a hypothetical situation where we take everyone in the "P2P" group and took away their ability to use P2P software. What would happen? The inference claimed by you, Michael, is that the statistics for these individuals would suddenly change to be the same as the non-P2P group. The alternative, which seems at least plausible to me, is that there is something fundamentally different about the people in the P2P group, and the possibility certainly exists that P2P group members would, on average, spend more in a world without P2P software.

There are statistical techniques that can help answer that question, but the NPD's statistical analysis lacks them, and as such is totally unable to address the question that actually matters. Instead they present bar charts and tables like the above to try to tell some story with statistics that are so simplified as to not be able to convincingly back up (or refute) the claims.

Of course, this may not be entirely the NPD's fault: getting the sort of data needed to draw statically-valid conclusions for this sort of issue is nigh impossible; as long as that is the case, there are going to be lots of reports telling all sorts of conflicting stories because, the truth is, we just don't have the data required to meaningfully answer the question.
November 15, 2012

Shawn H Corey said:

Put Up Or Shut Up
If the extra money from tickets and merchandising is not important, the RIAA should donate it to charity.
November 15, 2012

jonbly said:

...
33.3+33.3+33.4=100.0 ... now round all the numbers to integers and you call the result a math error?
November 15, 2012

Anonymous said:

Silly statistics
You can make the mob believe anything if you were only to shove them some charts up their arses.

Why would you even bother paying for such irrelevant issues? I'm guessing famine and +- 40 MILLION Americans living below the poverty border is more meaningfull that this horsecrap.

People on both sides, RIAA and anti-RIAA should be ashamed to waste their money on total bullshit. But hey I guess money makes everyone blind; let's donate 10dollars on some charity fund and scream hey ho i did my part for this month. DIE biatches!
November 15, 2012

Jeff said:

The old correlation is not causation
Along the lines of Greg's comment above, it is important to note that these stats only suggest that P2P users spend more on licenses and concert tickets; it does not indicate that they spend more (or less) *because they use P2P technologies*.

In other words, as in most (all?) economics arguments drawn from real-world data (as opposed to carefully designed studies), there is no effective control group to isolate the relevant variable: in this case, the influence of P2P usage on paid music consumption.

The causal mechanisms at play remain a mystery.
November 15, 2012

Kyle said:

...
Lol @ jonbly. Obviously didn't read the article.
November 15, 2012

Sam Jarvis said:

Morons, that you are.
All this god damn talk about the RIAA being morons and not being able to count makes me fucking sick. IT'S A GOD DAMN STUNT. All they're doing here is giving us reasons to hate them, while convincing the even more stupid that we're the bad guys. They want and need you to think they are morons, it's essential to their plan. You don't suspect them of any greater plan do you? Yeah, fucking thought so, they convinced at least you.

The piracy war isn't and NEVER was about profit margins. It IS however about installing greater surveillance on the internet and taking away basic liberties.

THIS HAS BEEN GOVERNMENT'S GOAL FOR THE LAST 50 FUCKING YEARS. Every single big movement in power has been to take liberties, absolutely every single one, this is but another. It's sickening how many of us are taken in by their BLATANT manipulation.

Now, they hold all the cards, they can legally track and detain you for any kind of piracy, and with the Fuckton of anti-piracy propaganda that has been thrown at us for the last 2 decades, the public are OK with this. The people are now against you, and they're against you.

You are the morons, the incompetent who are incapable of putting 2 and 2 together. Continuing with your blindness will only strengthen them. They know EXACTLY what the fuck they are doing.

Fuck. Sorry for all the swearing but for FUCK SAKE GUYS, YOU'RE SUPPOSED TO BE THE SMART ONES.
November 15, 2012

jonbly said:

...
Lol @ Kyle - first line of last paragraph. He's going for 'look, they've even got this wrong!', but falls flat on his face. There aren't 'rounding errors in the original data' - that's just how rounding a calculation like this works. Delete that line and stick to the point.
November 16, 2012

suthrnboy said:

P2P users...
...may contribute more to the things they end up liking i.e. upgrading to the HD version, seeing the concert or buying the album, but still take much more in value by far than they contribute. Its like going to the record store and stealing something, then taking it home and listening to it. If you don't like it, you do nothing. If you like it, you buy the Collectors Edition and go see the concert.
So fucking what?

P.S. You're a mental weakling AND record companies suck. Both can be true at the same time, unfortunately for you.
November 16, 2012

Crockett said:

Its like going to the record store and stealing something ...
Actually, its not. It is more like listening to it on the radio than anything else. If you steal something from a record store you have created a loss for the owner of that item and deprived someone from the opportunity to purchase it.

Sharing a copy on the other hand does not *necessarily* create a loss for the owner but rather could create an opportunity by promotion. So while I have always advocated purchasing the media one enjoys & uses, I had to point out the flaw in your logic. Mental weakling notwithstanding.
November 16, 2012

Joel said:

Junk
I need that fry meme. Not sure if he's trying flame, or just sucks at sarcasme.
Not to mention that he seems to think that a person should not have the right to sample before buying. I'm no theif, but seems to me that if I was to risk a petty theft charge stealing a cd, it would be a cd I would like. Now if I'm willing to buy the cd's that I like, then I would never be in a situation that I would ever want to steal....
November 17, 2012

Andrew said:

it's funny because it's true
Most people (not all) had great comments outlining the logic flaws and hypocrisy of the RIAA; a couple of flaw really make me laugh
1) RIAA believes an opinion of "Silly" is sufficient to discount a hypothesis. So much for data!
2) They believe they would pass a license test for statistical accuracy where a University would fail. A 100% profit based and industry biased group out to suppress other studies thinks they'll do better than a fully academic institution? Do they think a thesis defense is done with a goalie's glove?
November 18, 2012

Byte said:

...
It's a trick indeed, and the trick is for you to focus on dollar amounts instead of the basics.

Perhaps WE THE PEOPLE believe that "copyright" should not apply in the non-commercial, 'personal use' setting of peer-to-peer file sharing.

Even the flicker-of-hope policy brief entitled “Three Myths about Copyright Law and Where to Start to Fix it“, released by the Republican Study Committee but shortly thereafter retracted (gosh what I wouldn't give to listen to certain phone calls made in relation to that release) was still talking about "markets".

Sometimes it's not about the almighty dollar.


November 19, 2012

Russ Crupnick said:

Response from NPD Group
Dr. Geist,

First, thank you for calling to my attention the math error in NPD’s chart. That error is entirely mine as I clearly added back the subtotal of CDs, downloads and subscriptions into the net total. We will correct that error on the original posting at NPD.com

The point of my post was not to dispute anyone’s research. Most responsible researchers have agreed that P2P users spend more on music. What prompted the blog, and the title “Driving Under the Influence” was that the author of the original post discussing the American Assembly research (which I have no qualms with) said the following, and I quote…”The results add weight to the arguments of those criticizing the criminalization of file sharers by the music industry and pose the question whether the damage done by file sharing is really as big as many people believe it is” – Statista 10/16/12. In fact the data says nothing of the sort and, in my opinion, contributes to the irresponsible point of view that illegal file sharing of music via P2P is essentially harmless to the copyright owners, music distributors, promoters and artists.

What “Driving Under The Influence” inferred was that the conclusions that are often drawn from these data are blatantly incorrect and misleading. First I would encourage your readers to re-read my blog so that it is clear what my points were. Specifically my arguments were that looking at P2P users relative to the entire music population was an inappropriate comparison. Second, and more important these data, NPD’s included, give absolutely no indication of causality- that is, because one uses P2P they necessarily spend more on music. That has frequently been the crux of the argument made by those, who well, are driving without a license. With your permission let me include a link to my blog in order for your readers to decide for themselves whether my arguments are valid, or not. The link is…https://www.npdgroupblog.com/driving-under-the-influence/#more-3644


Michael, I take responsibility for the math error. As my driver’s ed instructor advised, double check your mirrors and seatbelt, and well this time, I did not, at least with regard to the subtotals. The data comparing the behavior of P2P users and non-users with regard to purchasing of CDs, downloads, merch and concert tickets is entirely accurate. This should not distract from the more important discussion of the impact of P2P usage on music revenues, or the legality of acquiring and sharing copyrighted material without license or permission.
November 19, 2012

Crockett said:

From the NPD blog
First I must give a tentative point (I'd like to see the demographic data) on comparing psp users to non-p2p users such as grandmas and small children. Apart from that I'd like to address another statement ...

"If file sharing was so beneficial, then why haven’t music sales increased between 1998 and now."

This is good question and one that the media industry should really be asking themselves, or at least publicly as I expect they know full well. It is best to keep the 'piracy is killing the music industry' meme going rather than address what I think are the real issues I'll outline below:

1) The single - Albums are a much more profitable product, that is obvious and undeniable. When most people have switched to buying a few tracks @ 99cents rather than a full CD at the 1998 price of $20, is it any wonder that profit from music sales has decreased? Pre-digital files, it was almost impossible to buy a single track. If you wanted to own that song you bought the album to go with it. The rise of digital file distribution (legal and non) changed this reality. So, was piracy the issue or the format change? Let me ask a question in the same style as the NPD blogger ... "If file sharing was so destructive, then why have paid digital music sales increased between 1998 and now"?

2) Market diversification - Most people I know have a fixed income and a certain percentage of that being disposable income for the purpose of entertainment. If we are going to talk about the 18-35 age group then we have to look at where they are spending that money. Video games as one item, cost a lot both in purchase price and time spent by the user. Sales were $10 Billion in 2004 and are $65 Billion today. In that same time period sales of recorded music shrank significantly, for 30 to 16 Billion, a coincidence? What about the precipitous amount of time spent on Facebook or you-tube? Only so many hours and dollars in the day.

3) Social media & Independent artists - The internet has provided opportunity for artists to promote and distribute outside of the traditional music industry. Some choose to give their music away for free or a pay-what-you-will format and make the bulk of their profits on performances or special merchandise. Many are able to make a much better living this way and while may not have as much exposure as the big names, they take home more than a small single digit percentage.

Finally, I am a big supporter of artists, at last the ones I enjoy. I pay for their products that I use and promote them to people I know. I encourage others to do the same, and if you can support them as directly as possible, all the better.
November 19, 2012

Crockett said:

Correction
The above should read P2P users not 'psp users'
November 19, 2012

Eric L. said:

RE: Crockett
You forgot one other things: crappy sounding loudness war mixes and mastering jobs on CDs and other mediums. I for one won't support an artist by buying a remaster CD that sounds worse that the out of print 80s/early 90s release.
November 20, 2012

Sloan said:

Try before you buy
As always, if you can't identify the value you are getting with your purchase, then why take the risk of purchasing an album and only getting a song's worth of value?

The music industry has long failed its customers in many ways because of its defensive response to the digital reality. It needs to let users sample music, not just for 30 seconds, but for entire songs. Keep the sample low quality, and let people listen to as much as they want.

The bridge in "Myth" by Beach House occurs at 2 minutes, 47 seconds into the song. A 30-second preview simply doesn't capture the essence of how fantastic that bridge is.

When Napster was out, I went from about 2-5 CD purchases a month to 12-20 as I discovered amazing bands, rare albums, B-sides, collections, and new artists. Good music is worth paying for, and I have bought plenty. Napster to me set off an explosion of music buying. The music industry shut down Napster, and with it my music buying collapsed to the point that, today, I buy no music at all. Today I put together playlists on Youtube and listen to Songza all day and the music industry doesn't get my $140+/month had they been on the ball.

The industry still isn't on the ball.
November 20, 2012

Eric L. said:

RE: Sloan
"The industry still isn't on the ball."

Then again, this is the same industry that seems to think that massacring dynamics and brickwalling songs is a good idea.
November 20, 2012

crade said:

...
"If file sharing was so beneficial, then why haven’t music sales increased between 1998 and now."
umm.. because most of the musicians worth the title are smart enough not to work for you anymore and therefore don't show up in your account book?
November 21, 2012

crade said:

...
@ Russ
You're fighting a strawman. The conclusions drawn from this data are that P2P users buy more music than others (under specific conditions, yadayada). The speculation and opinion as to why is just flavour not actually part of the study. Obviously you don't have any actual evidence for why P2P users buy more music than others either, so saying their speculations "are blatantly incorrect and misleading" when what you mean is "it's possible they are incorrect, and, if that were the case, they would therefore be misleading" is not really honest..


By the way, needing a license to publish data would be a handy way to control what data people are allowed to see, but I think I'd prefer information be as free as possible, even if that means people have to actually bother check stuff once in a while.
November 21, 2012

Nasrullah Idris said:

New Conseptor
As a child, primary school class, made the statement, "7 Chip + 2 Chip = 9 Chip", we do not need to ask, "Do you know about Chip?". Better to criticize the answer, "True" or "False". Is not it? (Nasrullah Idris - Indonesia)
November 22, 2012

Sam said:

Common sense
Engagement is key in advertising nowadays. All the emails and social media and attempts to make customers active participants in the advertising machine? The music industry had it made without having to spend a dime. They let themselves be lost in the imaginary world of lost potential sales instead of realizing what they had. They chose short term gains over adapting for long term gains.
December 01, 2012

Abara said:

More math
My math is really rusty but how do you get 49% out of 138/206*100 = 66% p2p spend then 33 &#xmo;re and not 49%?
February 14, 2013

Alsee said:

More math reply
"My math is really rusty but how do you get 49%"

206/138 = 1.493 = 149.3% = 49.3% increase.
May 22, 2013

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