Time and again, we pointed out the importance of anti-piracy efforts to building a sustainable and healthy legal music marketplace (see here, here, here, and here). Although the impact of anti-piracy efforts often seem self evident to us, it’s important to see the real world effects, and we’re happy to see two new studies illustrating the value of these efforts in the marketplace.
Professor Brett Danaher (an Economist at Wellesley College) and colleagues recently did a study on the effects of a copyright alert system similar to the one announced in the United States last summer, that has been operating since 2010 in France (generally referred to as “HADOPI”, see here, here, and here). Using data on iTunes sales in France, and other major European markets as comparisons, the study estimated that digital sales improved 22.5% for tracks and 25% for albums due to the enactment of and publicity surrounding the HADOPI graduated response anti-piracy laws. Further, the study found that sales increased even more strongly among the genres of music that were most often pirated (see Professor Danaher presenting his results here).
What could this mean for the legal market? The HADOPI study findings implied a sales improvement of €13.8 million ($18.6 million) for the digital market in France. However, the French digital download market is far smaller than the U.S. digital market. If sales gains of the same percentage occurred in the United States, that would imply an increase of hundreds of millions of dollars in sales of digital tracks and albums.
The passage of time since the shutdown of Limewire in late 2010 has given us another opportunity to examine the effects of anti-piracy measures. The RIAA used Nielsen Netview data to look at music related website and application usage for people who used Limewire in September of 2010 (prior to the shutdown). Those patterns were compared with the same people one year later, in September of 2011. There were almost 2,800 people in the cohort, and the panel included data from about 50 music related websites and apps (including authorized services like iTunes, Pandora and Spotify, as well as sources of illegal content such as Limewire, Frostwire, Megaupload, The Pirate Bay, and many others).
The analysis showed that the vast majority (almost 90%) of those who used Limewire in September 2010 did not use it in September 2011. Further, about 65% of those who stopped using Limewire did not use or visit any of the applications and sites in the panel that primarily provide illegal downloads. Broadening that to total audience with the regular panel weightings, of the 14 million U.S. Limewire users represented by the group in September 2010, 9.5 million did not use any of the unauthorized sites monitored one year later.
The effect was not just limited to one site. The Limewire shutdown affected the overall numbers of users of illegal content sources. The overall number of U.S. users of the illegal sites in September 2010 was 28 million, but that fell to 19 million by September 2011. These data points are consistent with recent statistics published by the NPD Group (here and here) showing a decrease in usage of P2P for acquiring music, and an increase in the number of people purchasing legally. According to NPD, the number of digital purchasers grew 14% to 45 million people, and the number of people using legal online radio services like Slacker and Pandora grew faster than any other music listening options.
Combined with an ever growing body of academic literature (see here for example), these findings again confirm the connection between illegal downloading and displacement of the legitimate music market.
Despite this progress, it’s worth noting that, still, some 13% of Internet-connected users, according to NPD, use file-sharing services to acquire music. Combine that with the fact that NPD further reports that more than half of all music was acquired illegally (also counting hard driving swapping, CD burning, file sharing hubs like Megaupload), and we still see a significant digital theft landscape that inhibits the potential of the legal services and compromises the music industry’s ability to invest in new bands.
Our work is far from done, but the data does collectively show that anti-piracy measures can have real effects on the legal marketplace. In 2011 we saw a stronger music market than we have in recent years, with growth in digital sales and more legal options available.
The single most important anti-piracy strategy remains innovation, experimentation and working with our technology partners to offer fans an array of legal music experiences. Results like these show, though, show that strategic enforcement is also necessary and do make a difference.
Joshua P. Friedlander
Vice President, Strategic Data Analysis, RIAA