Those dirty thieves pirating digital music are killing the whole music industry—or at least that is the reality that the music industry would have you believe. But can the music industry actually back up those claims with evidence? A new study by the European Commission Joint Research Centre, “Digital Music Consumption on the Internet: Evidence from Clickstream Data,” actually found that “digital music piracy does not displace legal music purchases in digital format.” In other words, the claims of piracy-driven doom and gloom in the music industry (even as digital revenues grew 8% in 2011) are really just a swashbuckling tale.
The report does a nice job of outlining the difficulties of research in this area; there is no real economic theory to help explain the impact of piracy. A key question for the study was attempting to determine circumstances under which music that was illegally downloaded might have been legally purchased. What it comes down to is a comparison of perceived value versus sales price:
If the albums consumed through illegal channels are valued above their price by the consumer, then there is indeed sales displacement: The consumer would have bought the album had she not downloaded it. If, however, the consumer’s valuation is below the album’s price, then no sales displacement occurs: the consumer would not have bought the album had she not downloaded it.
In the end, the study reported “no evidence of digital music sales displacement” from piracy. If anything, there seemed to be a “rather small complementarity between these two music consumption channels.” The report explains that this comes from the theory that piracy of some music with a low perceived value that would never have been purchased anyway creates a consumer surplus that can be used to purchase music with a high perceived value. Another surprising find was that legal streaming of digital music had a “somewhat larger” impact on digital music purchases.
What might this mean for our consideration of ebooks? Even though music and books are different in some aspects, they would both fall under what the report refers to as an “experience good” so I believe we can (at least cautiously) extrapolate the findings of this report to ebooks. A perennial issue in conversations with the Big Six is the displacement of sales due to library lending. At times, it even seems that the Big Six view library patrons as ebook pirates, so let us then embrace this study’s findings, which show a lack of sales displacement. In fact, libraries are much more similar to the legal music streaming services discussed in the report—and those streaming services stimulated sales.
As the report notes, “[illegal] file sharing can allow consumers to sample specific songs or albums which can inform them on what to buy” and “sampling of a specific song may stimulate individual demand for other songs by the same artist (Shapiro and Varian, 1999; Peitz and Waelbroeck, 2006; Belleflamme and Peitz, 2010).” In other words, no matter how the Big Six want to view library ebook lending, the evidence from a similar experience good suggests that our library programs are likely having a positive impact on ebook sales.