Stealing Music Sells CDs

There is a new Canadian study on file sharing that bolsters what many of us who work with the next generation already know -- file sharing (or stealing music) actually helps the record labels sell CDs.

You can't tell that to the music industry.

They cannot and won't wrap their arms around this concept. If they allowed themselves to believe that stealing music actually sells CDs, they would have no one to blame for the sorry state of the record industry -- other than themselves.

Industry Canada did the study during 2006-07 to measure the extent to which peer-to-peer file sharing networks affected music purchasing in Canada. Data for this analysis is from a Decima Research survey and the report was prepared by University of London researchers.

The researchers found that music downloads have a positive effect on music buying among Canadians who download but that there is no effect when the entire population 15 and older is taken into consideration.

The findings are fascinating and thought-provoking. Here's a preview in the words of the researchers:

1. In the aggregate, we are unable to discover any direct relationship between P2P file sharing and CD purchases in Canada. 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.

2. However, our analysis of the Canadian P2P file sharing sub population suggests that there is a strong positive relationship between P2P file sharing and CD purchasing. That is, among Canadians actually engaged in it, P2P file sharing increases CD purchasing. We estimate that the effect of one additional P2P download per month is to increase music purchasing by 0.44 CDs per year.

3. Furthermore, our analysis of the Canadian P2P file sharing sub population does not uncover any relationship between P2P file sharing and the purchasing of electronically-delivered music files. [.....] It is difficult to conclude what is the net effect of P2P file sharing on purchases of electronically-delivered music.

4. Another important finding is that the overall results show that people who purchase paid electronically-delivered music are not less likely to purchase music in traditional markets (CD albums).

5. Furthermore, there is a strong evidence that people who buy a high number of DVDs, video games, cinema tickets and concert tickets also purchase a higher number of CD albums. The same is the case if we view the P2P file sharers in isolation.

You can read the analysis and view the charts by clicking here.

A Harvard study that has been well-worn over the past five years or so concluded that file sharers use the music to discover what they may want to buy. In fact, it points out that much of the music that is sampled is then deleted. No harm done.

The Canadian study is perfectly in line with what I have witnessed in working with the next generation at the university level.

Young people no longer rely on radio to help them discover new music -- they look to each other through file sharing and social networking. They have to hear it somewhere to even consider buying it. And when they decide not to buy it, they may keep listening to it or they may disregard it or delete it.

Young consumers also look at things holistically. For example, they feel they support many of their favorite artists by attending concerts and live shows. And they feel they are gouged by the promoters and ticket agencies. This does not leave them in a mood to want to buy CDs unless they actually want to own the CD.

Gen Y has proven that they will buy music they want to own once they know they like it. An example of this is iTunes which charges 99 cents for the convenience of selling a track of music that young consumers could otherwise steal.

And young consumers seem to want to own the music they pay for rather than subscribe to services that offer millions of songs for a monthly fee. The subscription model has not been as effective as the 99 cent iTunes model offered by Apple.

Universal's new plan to offer "free" music for 12 months on Nokia phones will be flop if I am reading it right. By the second half of 2008 when the project begins maybe Universal will then find out.

Even if consumers could get music from all four labels for free for 12 months, it won't work. Universal thinks it will pressure its arch rival Apple. There's bad blood between the two industry giants -- so much so that Universal can't focus on the real problem.


Subscription services will fail.

Nokia is not Apple.

Stealing music sells CDs (we've got new proof as you have read today).

And, the future of the music industry is closer to Live Nation than any of today's big four labels.

When Live Nation signed Madonna for a ten year mega buck deal, skeptics said it would never make its investment back. I believe a few world tours and they make their original stake back because artists don't need labels anymore. They need touring experts, merchandisers and access to the top venues.

These things are not among the skill sets of record labels.

That's why the labels are forced to rely on what skills they traditionally have had -- suing people, cutting costs and manufacturing.

Unfortunately the labels are in a dying business but they helped to kill it. The latest Canadian study on file sharing will not be the last indictment of their incompetence.

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