THE ECONOMIC IMPACT OF ILLEGAL DOWNLOADING

ON THE MUSIC MARKET

ALEXANDRE BAUMANN

1
Table of contents
Introduction....................................................................................................6
First chapter: Setting the elements of thought............................................... 8
I.The essential of the economic doctrine about piracy.......................................... 9
A.The fall of music sales................................................................................................9
B.The different types of impact of piracy on music sales............................................13
C.Neutralizing the bias.................................................................................................17
D.Conclusions about the role of piracy........................................................................22
E.Impact of piracy on music production and the economy in general.........................27
II.Data about the music market and its actors..................................................... 30
A.The structure of the music market............................................................................30
B.The music and the digital revolution........................................................................ 37
C.The artists..................................................................................................................49
D.The pirate..................................................................................................................52
Second chapter : Exploitation of the data....................................................58
I.Questioning the alleged correlation between piracy and the fall of profits .......60
A.Sales, a flawed indicator inaccurately accounting for profit....................................60
B.Sales, a data set difficult to monitor..........................................................................67
C.The fluctuating quantifications of piracy..................................................................69
II.The neglect of numerous important variables in the establishment of causality
........................................................................................................................... 73
A.Questioning the use of average incomes to control the bias of revenue variations..74
B.The irreducible problem of interest in music............................................................76
C.The poor control of technological changes...............................................................78
D.The actions of the music industry as an uncontrolled bias.......................................83
E.Potential bias: the evolution of market dependency and distribution process..........95
F.If most of the variables are controlled, why cannot we explain the differences
between different variations?........................................................................................97
III. The preposterous assumption of a negative impact of a fall of sales on music
production........................................................................................................ 100
A.Revenues and musical production: a long story.....................................................100
B.The contribution of piracy to market efficiency.....................................................103
IV.Chapter conclusion...................................................................................... 107
Conclusion.................................................................................................109
Bibliographie............................................................................................. 113

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 Introduction
“An epidemic is haunting our creative economy: an online
epidemic of theft-based businesses. It is an epidemic that,
in many ways, both undermines our creative economy and
impoverishes our culture.” (Keen 2013)
It seems widely accepted that piracy, especially via peer-to-
peer1, bears significant responsibility in the fall of music sales
since 1999: the time for questioning I deemed over and only
action now deemed necessary. Several countries, including the
US and France, have taken coercive measures against illegal
downloading, such as the HADOPI2 in France or the Digital
Millennium copyright Act (DMCA) in the US.
However, these legislative responses to piracy should not hide
the fact that the relation between piracy and sales is, in fact,
controversial.
For example, a study realized by an organization attached to the
European Commission (JRC 20133) concluded that illegal
downloading and streaming had a slightly positive effect on
digital sales of music. On the contrary, Zentner (2010) concluded
that piracy was responsible for the fall of sales from 50 to 100%.
Why do the conclusions of different serious studies differ? To
outline a response, I reviewed several thousand pages of articles,
reports and theses on this issue. They represent, I think, the crux
of what the scholars and the music industry said on the subject.
Besides, what would be this subject? What has appeared at the
end of the nineties is the possibility, with the peer-to-peer, “to
copy music, books, video games and other protected works on an
unprecedented scale at minimal cost.” (Oberholzer Gee and
Strumpf 2009). It is this wide, free, unpersonalized and illegal
access that we will discuss. So, if a question should summarise
1 It is a way to download content from another people and allow people to do so. The content goes
from peer to peer, unlike direct downloading (the content comes from a platform).
2 “Haute Autorité pour la diffusion des œuvres et la protection des droits sur internet” (= High
authority for diffusion of cultural works and rights protection on Internet)
3 This annotation means “I refer to the paper published in 2013 by the JRC (Joint Research
Center). You will find the exact reference of the paper in the bibliography.”

3
the subject, it must be wide enough to include other similar
technologies (direct downloading and streaming) and narrow
enough to exclude CD-based copy and smuggling.
It is also important to define the market studied. Video-games,
films and music market have totally different features. As the
music market is the most studied, I decided to focus on the
following question: “What is the economic impact of illegal
downloading on the music market?”
I will start with a synthesis of the main position of the “doctrine”
4
about illegal downloading and data linked to the problem
(artists income, history of digital revolution, definition of the
value chain … ) It will be an objective examination whose object
is to set the elements of thought. (First chapter)
I will then converge these elements, analyzing the elements of
thought, in order to go beyond the existing literature, opening
new leads and new perspectives for research. (Second chapter)

4 By « doctrine », I imply the majority opinion among scholars and institutions.

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 First chapter: Setting the elements of thought
I will expose the reasoning of the “doctrine”, namely that of
most institutions and scholars dealing directly with the subject.
The latter takes place in the wider reflection on the economic
rationality of copyright. According to the economists, the
monopoly the artist has on the distribution of his work should
improve the quantity and quality of artistic creation.
The cultural goods (song, book, film …) cost time and resources
to be developed. Once created, its reproduction cost is very low,
sometimes almost null. This kind of goods are called “non
rivals”, which means that their utility does not decrease if more
people use it. However, the copy would create a shortfall for the
creators and, if the authors are not rewarded, music production
will end up diminishing. Then, if in the short term it could be of
general interest to make music freely available, it would not be
true in the long term, as less and less new songs would be
created.
This reasoning crosses a wide range of economic, psychological
and sociological themes. To explore these different aspects, we
will have to study, in addition to the result of economic studies
(I), the structure of the music market and its protagonists (artists,
pirates …). (II)

5
 I. The essential of the economic doctrine about
piracy
« There is a rather clear consensus on the negative effects
of online piracy on the off-line physical sales of recorded
music. » (JRC 2013 p.2)
Globally, most empirical studies find that piracy harms sales of
music. Only a few studies diverge (Oberholzer-Gee and Strumpf
2007, Anderson and Frenz 2010, JRC 2013, TNO 2009). Only
the first, harshly contested, was published in one of the great
economic journals.
However, the doctrine agrees in theory on the existence of an
ambivalence of the impact of piracy. This ambiguity is perfectly
summarized by Hui and Png (2003):
“Therefore, on the one hand, piracy steals from the legitimate
demand as potential buyers switch to pirated products. On the
other hand, piracy raises the legitimate demand by inducing
more people to buy and raising their willingness to pay. The
balance of these effects is an empirical question.”
Consequently we have to detail the theoretical positive and
negative effects of piracy recognized by economists before
dealing with the empirical studies. To estimate the impact of
illegal downloading, the economists observe the correlation
between piracy and sales and control the different bias to
transform this correlation into a causality. This negative effect
would harm the number and quality of new songs.

A. The fall of music sales

1. The fall
There was a huge fall in sales which began in the US shortly (in
2000) after the apparition of Napster, the first software allowing
P2P which was really user-friendly in June 1999. According to
the OECD (2005), the evolution of the value of world music
sales between 1991 and 2003 are :

6
 Illustration 1: PIB growth and CD units shipped in US
Source: OCDE 2005

Illustration 2: Music sales (million units) evolution in US and France (1970-2005)

Source: Bourreau et Labarthe-Piol 2005

In France, the music market fell from 713 millions€ in 2007 to
489 in 2012. (SNEP 2013 p.9)

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 Illustration 3: Evolution of the value of world sales (in Billion $)

Source: SNEP 2013

2. Methods to estimate the fall of sales

Each way to estimate the fall of sales has a set of shortcomings,
which we have to explain. There is two groups of data:
macroeconomics data, such as national statistics and
microeconomics data, such as surveys.
› Macroeconomic data : regional statistics
The macroeconomic data concerns a delimited territory, often
a country. Its weak parts are its measurement and the
signification of the data. For instance, studies realized by Nielsen
Soundscan meant to count the sales of the music stores.
However, they did not succeed to monitor every music store and
they did not count the sales which occurred outside the stores,
which represented 25% of the American sales (Zentner 2010).
The wide majority of scholars prefer to use the wholesales
statistics published by the music industry. The problem is that it
provides informations of the sales to the retailers and not to the
consumers. It could mislead the researchers on the variation of
the music consumption.
Another problem is in bias control. The bias are very difficult

8
to identify and quantify at a macro scale. For example, it is very
hard (if not impossible) to quantify correctly the interest for
music of a whole population.
› Microeconomic data: surveys
Surveys have three shortcomings :
- Sampling
To be really meaningful, the group answering the survey must be
a correct representation of a population. For example, a survey
questioning students will only provide information on the
behavior of students, not of that of workers, elders etc. Still, to do
so, the students questioned would have to be a representative
sample of the student's population. These are the classical
problem of “sampling”.
- The bias induced by the choice of the question
The question asked has an impact on the result and its
interpretation. Thus, in the survey realized by Rob and Waldfogel
(2006), we can observe that different questions supposed to mean
the same thing get totally different answers.
To one group of respondents, they asked “Imagine you no longer
have the album and must pay to get it. What is the maximum you
are willing to pay to get the album?” and to another “Imagine
someone offered to pay you money to permanently give up the
album (and never again hear any song on it). For each album,
how much compensation would you require never to hear it
again?” (p.16)
In the first group, the average response was 12,70$ for the
albums the respondent actually bought, and 8,81 for those
downloaded illegally. In the second group, it was respectively of
56$ and 2,5$ !
- The bias caused by the inaccuracy (voluntary or not) of the
answer
The answer is not always true: the respondent might be reluctant

9
to be honest or may not know the true answer (especially if the
question is of the “what would you do if …” kind).
When the question concerns actions inhibited by the law or
moral values, the respondent might have a tendency to minimize
their “offence”. On the contrary, if they value the contempt of the
norm concerned, they might overestimate their activity:
“Given the highly politicized nature of file-sharing, it
wouldn’t be surprising if respondents tried to minimize
their reported reduction in CD purchases. If so, results
based on such surveys would be biased to understate the
true impact on sales.” (Liebowitz 2005b p.21)

B. The different types of impact of piracy on music sales

Clearly, piracy might negatively impact (“displace”) sales. But it
is less well-known, even if it is widely admitted among
economists, that it might have several positives effects too.

1. The displacement or substitution effect

The substitution effect is the effect by which downloaded albums
replace the albums sales in the expenses of consumers.
The consumer, confronted by similar products, will choose the
cheapest. The downloaded file costs nothing, except the time to
download it, and the quality is similar. So the consumer would
have no reason to buy the album.
- The substitutability of the product
One of the keys of this effect is the similarity of the products.
The less two products are similar, the less they can substitute to
each other. It was the case for the sales of tapes: as the more we
copied a tape, the more the quality of the copy fell, the
substitutability of the product had only a limited impact.
(Liebowitz 1985) Indeed, as the copies were less enjoyable than
the original, it became more desirable to buy a new one
(especially if the copy is the third or fourth).
However, the copy of illegal downloading is perfect. The only

10
difference is the packaging of the product: if you buy a CD, you
have a customised CD, a box and a booklet.
- The facility of copying and sharing
The other key is that if the easier it is to copy and share the
download, the more frequently it will be shared. The audiotapes
had a limited copying capacity, since the quality diminished, so
an original was needed for a few number of copies. Moreover,
you had to physically exchange the item, which limits its
diffusion.
On the contrary, MP3 copies have no limits, and the downloading
technology allowsinstant sharing on a worldwide scale.
Moreover, the quality of the original is totally unadulterated.
Economists call music files “non rival” goods, “which
consumption by an economic agent doesn't affect his
consumption by another.” (Bacache et al. 2009) It's specifically
hard to block the illegal reproduction or distribution of theses
goods, since the act of sharing has no costs.

2. The potentially positives effects of piracy

The doctrine mainly studied three effects of piracy which could
be positives or, at least, limit those which are negatives :
sampling effect, network effect and indirect appropriation.
› The sampling effect
The sampling effect, also called the exposure effect, “occurs
when someone makes a purchase they would not have made
except for the fact that they were able to sample the product in
another venue (listening to a copy or on the radio)”. (Liebowitz
2004 p.97) However, the consumer might be dissuaded from
buying the product, so the impact of this effect is ambiguous.
Music is often referred as “experience goods”. The buyer will
only know its quality and if it suits or not his need after he
purchased it.
Lacking information, the consumer might distrust the product

11
and therefore not purchase it. “One obvious answer to this
problem is to allow consumers to try out the product (listen to an
extract from a song, watch the trailer of a movie, browse a book
in a bookshop or on the web, test a beta version of a video game
or a software).” (Belleflamme and Peitz 2010)
According to some scholars, the consumers would see the album
as more valuable if they could test it, as they would then know
better its contents. And it would lead him to buy more albums.
S.Liebowitz strongly disagree with this hypothesis. In his
opinion, these samples would only diminish the curiosity of the
consumer, and the effect would be clearly negative. He assumes
that the consumer has a need for a fixed time of music listening.
Then the sample would partly fulfill his need, and thus reduce the
necessity for the consumer to purchase music. Moreover, as it
enables the consumer to choose the most satisfying music, their
need would then be fulfilled by less listening time or albums,
which would diminish his purchases. (Liebowitz 2006 p.18 et
Liebowitz 2004 p.16)
We can underline that, according to the MMC, “The sales
success of a new release is dependent on consumers being able
to hear the recording. The record companies estimate that fewer
than 10 per cent of albums are bought by consumers who have
not heard the music before. However, in order to achieve playing
time in the first place and in order to exploit any playing time
that is achieved, it is also necessary to promote the recording.”
(Quoted by Bourreau and Gensollen 2006 p.28) It could be an
interesting statistic supporting the viability of the sampling
effect.
› The network effect
The network effect “occur for when consumers values of a
product change depending on the number of other users there are
of the product. Telephones and fax machine are two examples of
products where the value of those products depends on the
number of individuals using those products.” (Liebowitz 2005b

12
p.10)
We can question if this effect exists in the music market and what
impact it would have. Indeed, it might “work to alter the size of
the total market, as assumed by these theorists, or merely shift
demand among different sound recordings.” (Liebowitz 2006
p.18)
According to Belleflamme and Peitz (2010 p.13), “Music, books
and movies also exhibit network effects: The more they are
consumed, the more people are knowledgeable about them and
the more they become attractive (because of word-of-mouth
recommendation or because of the social prestige they confer).”
Knowing more films/books/music enables to discuss with those
who have an interest in it and display a cultural leadership in a
group. The authors conclude: “When network effects are taken
into account, one observes that copyright holders may welcome
end-user piracy.”
Liebowitz (2006 p.18-19) has an opposite point of view:
“Finally, a simple but practical difficulty with applying the
network effects model to file sharing is that radio already allows
unlimited music listening at zero cost. Thus, it is difficult to
imagine that file sharing would provide any new network effects.
Some additional support for a skeptical view of network effects
and sampling comes from examining the impact of radio play
(which should allow sampling and create network effects) on
overall record sales, where there does not appear to be a positive
relationship.”
› Indirect appropriation
The indirect appropriation is a mechanism allowing the
producer to capture a part of the “surplus” created by the illegal
copy. This notion was first used by Liebowitz (1985) in a study
concerning the photocopy in libraries. The subscription to a
journal was more expensive for libraries, as it was more copied
there. In this case, the producer could capture a part of the utility
created by the unauthorized copy. At first sight, it is not a

13
comparable situation, as the music industry can't discriminate
between the different consumers.
However, in France, there is a tax on blank CDs, USBs, hard
drives … which is destined to the music industry. It might be a
kind of indirect appropriation, since a lot of blank CDs and
storage space are used as supports for pirated albums. Thus, the
revenues of this tax are increased by the piracy: it is a case of
indirect appropriation.

C. Neutralizing the bias

The size of music revenue drops have been linked to the
causality between the rise of file-sharing over peer-to-peer
networks and to the drop in CD sales. It is true that a great
volume of copyright infringement is taking place over file-
sharing networks. However, it is also likely that a
combination of factors has led to the decrease of sales.
Some of the factors driving the entertainment revenue
industries that may have changed were mentioned earlier.
Next to file-sharing the following factors have been
advanced to explain the fall in music sales: physical music
piracy (counterfeiting), economic factors that point to fall
of GDP growth after 1999 in many countries, demographic
factors that point to a fall in the number of high spending
teenagers in OECD countries, the absence of new music
formats that like the CD lead to a new spurt of music
revenues, increased competition for consumer attention
from entertainment sources (like the Internet, movies,
online computer games), and a drop in music releases
(number of titles) with music labels concentrating even
more on existing artist rosters rather than on the
development of young artists - although this development
was in turn the consequence of decreased risk taking due to
decreased revenue, price increases of CDs and, possibly,
lack of innovation» (OECD 2005 p.23)
Once the correlation is established, we observe that there are a lot
of variables which will have an effect on one or both elements we
study without being caused by any of them.
For example, interest in music will have a positive effect on both
legal consumption and illegal consumption. Likewise, a famous
album will be both widely sold AND pirated. On the other hand,

14
the rise of household income will have a positive effect only on
CDs sales and is caused neither by theses nor by piracy.
In order to establish the existence of a causality between piracy
and the fall of music sales, we have to control these bias.
Globally, economists focused on neutralizing the impact of the
substitutes, the interest in music, the demographic variations, the
variation in the prices and in the households income.

1. The impact of the substitutes

« Apart from online piracy, there have been other changes
in the market environment for music over the past ten years
such as the increased number of entertainment sources
which may explain changing music sales. » (OECD 2005
p.8)
Jay Berman, at this time president of the IFPI, attributed the
fall of 7% of music sales in 2002 not only to piracy, but also to
the rise of DVD movies and videogames sales.
The idea is that consumers would have an amount of money
allocated to entertainment and that the products answering this
need would all be in competition for this share. With digital
revolution, the price of films and videogames fell sharply as their
quality rose. They took more “entertainment market” share,
theoretically on the detriment of music (which price and
“quality” stayed the same) sales.
Economists studied mainly two types of goods: movies and
videogames.
According to Liebowitz (2003), the variations of music sales,
videogames and movies are positively correlated between 1990
and 1999 and, even if the correlation was negative, the impact
would be negligible because people spent in average much more
time listening to music than watching movies or playing
videogames. Moreover, there is no radical change in
videogames/movies consumption in 2000, so it can't explain the
radical fall of music sales (Liebowitz 2005b). Bourreau and
Larbathe-Piol (2005) share this point of view, even if they didn't

15
find any correlation between theses variations.
El Gamal (2012 p.50 and after) compares the prices of
these different types of goods between 1998 and 2011. If the
consumer had to choose between them, the fall of the price of
one of them would have a negative impact on the sales of the
others if their price stays steady. The price of music rose of 10%
between 1998 and 2006 and fell of 20% between 2006 and 2011.
During this time, the price of movies (DVD/VHS) was cut in half
and the price of software was divided by 2,5. However, there is
no statistically significant correlation between these variations,
so it can't explain the fall of music sales.
Thus, all conclude that the rise of substitutes can't explain the fall
of music sales.

2. Interest for music and variation of the music quality

On a microeconomic scale, interest in music is probably one of
the hardest variables to control. A person who likes music will
have a greater propensity to buy and pirate music. Without
piracy, they would have (theoretically) bought more.
To control this bias, economists use mainly as a proxy 5 for piracy
the existence and quality of the Internet connection. This variable
will be positively correlated with piracy and not with interest for
music. Then, comparing the purchases of people with a
broadband access to those who do not would determine the effect
of interest for music. Some economists ask directly to the
respondent to evaluate their interest on a 1 to 5 scale. (Waldfogel
2010)
The method used by the Joint Research Center (2013) is very
interesting, but specific. It looks at if the people investigated visit
a lot of websites related to music (forums, shops, journals …)
and the intensity and length of theses visits.
At a macroeconomic scale, the question of a global change of
interest in music is important too.
5 Proxy = variable being used in the place of another variable harder to measure or biased.

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Liebowitz (2003), Walbroeck (2010), Bourreau and Labarthe Piol
(2005) write that, if the interest of populations for music had
diminished, we should “observe a disinterest for live music and
music shows on radio and television.” (Bourreau and Labarthe
Piol 2005) However, sales of concert tickets rose sharply and
music radios attract more and more people (Liebowitz 2003,
Walbroeck 2010). They all conclude that interest for music grew.
Then, it would be an circumstance aggravating the responsibility
of illegal downloading.

3. The demographic evolution

People from 15 to 25 years old buy the most music albums per
person. Then, the older they grow, the less they buy. Thus, the
aging of the population could hurt music sales.
Boorstin (2004 p.31) observes that the growth of population
should have augmented the sales by 0,8% and the aging should
have diminished them by 0,1%. Then, demography would have
been a positive factor, augmenting by 0,7% the sales on the years
2001, 2002 and 2003.

4. Variation of the price of music

The (wholesale?) price of music in the US has been notably
steady, following the inflation from 1980 to 2002, (Liebowitz
2003) this tendency continuing until 2006 (El Gamal 2012)
Similarly, they have been stable in France between 1990 and
2003 (Bourreau and Labarthe-Piol 2005).
According to the SNEP (2009 p.16), the average price all taxes
included of a music album in France went from 17,1€ in 2003 to
14,6€ in 2005 (-14,6%), to 14,4€ in 2008 (-1%) and finally
13,45€ in 2012 (-6,4%, SNEP 2013 p.31). The INSEE estimates
the inflation at 3,8% between 2003 and 2005, 5,7% between
2005 and 2008 and 5,5% between 2008 and 2012. Thus, the real
price of music album has diminished of 17,7% in the first period,
6,7% in the second and 11,6% in the third one.

17
The OECD (2005 p.28) highlights that “in September 2003,
Universal Music Group, for instance, cut its suggested US CD
retail price to USD 12.98 from earlier prices ranging from USD
16.98 to 18.98. Sony Music followed suite in the beginning of
2004 and dropped prices by 25% for four dozen titles. The
average retail price for CD albums fell nearly 4% to USD 13.29
in the first quarter of 2004, vs. USD 13.79 last year, according to
NPD Group’s MusicWatch PriceLab. However, the influence that
record companies have on retail prices is said by IFPI to be
limited. It is asserted that efforts by companies such as Universal
to reduce prices have not fully succeeded – as not all retailers
passed on the reduction to consumers.”
Thus, globally, we had a stagnation of the price until 2003-2006,
and a moderate fall. Most studies conclude that these variations
can't explain the fall of sales.

5. The variation of household income

It seems obvious that the music industry could sell more albums
if the households had more money to spend. According to
Liebowitz (2005b p.23), in the US “from 1999 until 2003 real
disposable income per capita has increased by $1582, which,
according to [his calculus], should have led to an increase in
sales of 0.85 [album sold] per capita.” On the contrary, the
OECD (2005) doesn't find any correlation between GNP growth
and CDs sales in the US between 1991 and 2003.

6. A “librarying” effect?
According to Liebowitz (2003 p.13), a librarying effect “would
consist of individuals wishing to update some of their favorite
recordings to the new medium”. It could be accentuated by new
functionalities, such as portability. Then the rise of CDs sales in
the years before 1999 could have been motivated by this effect
and their fall by its disappearance.
However this effect is not quantified and the author concludes:

18
“Although I have not performed such a test, I suspect that
librarying is not the key factor at work because there is little
evidence that the switch from LPs to cassettes caused much of an
increase in sales.”

D. Conclusions about the role of piracy

Most of the studies conclude that illegal downloading had a
negative impact on sales. However, some find that it has a
positive or neutral impact.

1. Studies finding a negative effect

Several studies calculate a substitution rate, which is the number
of albums not being bought for each album illegally downloaded.
According to Rob and Waldfogel (2006), it would amount to 0.2 ;
0.42 for Hui and Png (2003, about physical piracy) and between
0.3 to 0.6 for Waldfogel (2010).
We can distinguish several types of studies: those using
macroeconomics data, those using surveys and eventually those
dealing with the impact of anti-piracy policies. For a very good
synthesis, you can also consult the paper Liebowitz published in
2011.
› Macroeconomic conclusions
Liebowitz (2003) observes the variations of wholesales of
music in US. They fell sharply in 2000 and kept falling hard until
2002, the end of the data he used. He searched several
explications but finds that only the huge growth of Napster
popularity (30 million users after one year according to
Oberholzer-Gee and Strumpf 2009 p.8) is a credible explanation.
The reasoning of the IFPI is different. The simultaneity of the
growth of broadband penetration, facilitating piracy, and the fall
of sales would clearly incriminate illegal downloading.
Blackburn (2004) used the data of Nielsen Soundscan on the
detail sales of albums published between September 2002 and
2003. To estimate piracy, he used the data of Big Champagne on

19
the 5 main P2P networks. (p.14) It used as the proxy of the
popularity the presence in the “billboard's 200 charts”. The
author finds that piracy has a positive impact for little or
moderately known artists and a negative one for stars. The
overall impact would be strongly negative.
Zentner (2005) examined the variation of music sales in 16
countries during the years 1998 to 2002. He observed that those
where the broadband penetration was the deeper experienced the
sharpest fall of music sales. He observed as well that the sales of
the most pirated styles of music fell the most.
In more recent paper (2010), he studies the evolution of sales in
49 countries from 1997 to 2008. He uses the Internet penetration
as proxy for piracy and concludes that the latter was responsible
for half of the fall of music sales.
› Microeconomic conclusions
Rob and Waldfogel (2006) used a thorough survey including
500 students. The questions aiming at controlling the bias apart,
they enumerated a list of albums and noted if the respondent
bought and/or downloaded it. They found a substitution rate of
0.2.
Zentner (2006) used a survey interrogating 15 000 Europeans
and found that pirate had 55,1% chances to have bought music
the precedent month, whereas this percentage was only of 45,0%
for non-pirates. However, after controlling several bias, Zentner
concludes that piracy diminished the probability to have bought a
CD during the last month by 30%.
Waldfogel (2010) used a survey conducted in 2009 and 2010
on 500 economy students. For each of the 50 bestselling songs,
he asked if the respondent had a legal and/or illegal copy and
how much they valued it. He concluded that the substitution rate
ranges from 1/6 to 1/3.
Hong (2011) used the Consumer Expenditure Survey and
concluded that Internet was responsible for 20 to 40% of the fall

20
of music sales between 1999 to 2001.
Bastard, Bourreau, and Moreau (2012) used a survey
conducted in 2008 by GFK on 2005 French people. They found
that the impact of piracy depends on the type of goods. It would
have a negative impact on CDs sales, but a positive one on
digitalized music, movies and videogames sales. On music, the
impact would be globally negative (legal downloading was still
not widespread). They concluded that “legal and illegal
downloading don't appear as substitutes, but as complements in
numeric practices disregarding the traditional line between legal
and illegal activity.”

2. Studies dealing with the impact of anti-piracy policies

These studies are a little special and need specific developments.
According to the neoclassic economic theory, for illegal
behaviors, the consumer calculate the benefits of his action
minus the risk of being punished and the weight of the
punishment. Hence, by rising the penalties or the risk of enduring
them, lawmakers could heighten the “cost” of illegal behavior,
which would diminish the propensity of the consumer to choose
it. Then, the positive effect of repression on sales could be proof
of the negative impact of the illegal behavior on them.
Without agreeing to the neoclassic paradigms, it seems obvious
that, if an anti-piracy policy causes a rise in sales, piracy caused
the fall in sales in the first place. Three studies explore this
reasoning.
Bhattacharjee et al. (2006a) investigate the effect of the
lawsuits waves launched in 2003 against consumers sharing a
significant amount of protected music files. They show that the
number of files shared dropped sharply as repression hardened.
In the same time, for the first time since 2000, music sales rose a
little in 2004. It would clearly indicate a negative impact from
illegal downloading.
Adormo and Liang (2009) studied the impact of the

21
enforcement in Sweden of an anti-piracy law. They monitored in
2009 the traffic of Internet exchange points in Finland, Sweden
and Norway and compared the evolution of sales in these
different countries.
They concluded that this law boosted the physical sales by 26,5%
in the 6 first months, after which it had no effect. The digital
sales grew by 48,5% and their growth was durable. Generalizing
theirs results, they estimate that piracy was responsible for 43%
of the decline of global music sales between 2000 and 2008.
Danaher et al. (2012a) assessed the impact of the law HADOPI
on digital sales in France. They observed that, during the same
period, they rose more in France than in comparable European
countries. This difference rose when this law was very
publicized: when it was announced, when it was validated and
when the first wave of notification were sent.
They estimated that, in France, iTunes sold 25% more albums
and 22,5% singles between March 2009 and May 2011 thanks to
the HADOPI law. Moreover, the estimated impact was stronger
on the most pirated types of music.

3. Studies assessing the positive or neutral effect of

piracy
In his theses, Boorstin (2004) concluded that, even if the impact
is negative for the 15-24 years old, piracy has enhanced the
purchases of the 25+ years old. Globally, the effect would be
positive.
Oberholzer-Gee and Strumpf (2007) presumed that as a large part
of illegally downloaded files in the US are being hosted by
German students, piracy in US is correlated with piracy in
Germany. Thus, pirated files would be harder to find during
German holidays when the computers of young Germans are off.
Accordingly, if piracy harmed music sales, there would have
been more purchases made by those who usually pirated during
theses periods. However, there was no significant correlation

22
between sales music sales and holidays in Germany, which
would mean there is no correlation between piracy and sales.
This study, even if published in a prestigious journal, is very
questionable. Indeed, the purchase decision is not necessarily
modified just because there is a change during a week ; harder
doesn't mean impossible and the time of the year determined
probably, by itself, more the purchasing behavior than the fact
that another country's students are on holidays. (Liebowitz
2011a) On another side, this article uses the exact same reasoning
as the other papers, such as the automated effect of rising
difficulties in illegal download on purchasing behaviors. In fact,
this paper could be the proof by contradiction of the flaws of the
reasoning of the doctrine.
Andersen and Frenz (2010) used an orthodox reasoning, but
found non-orthodox results. The authors used a Canadian survey,
control in a banal way the bias such as the revenue, demography
or interest for music, but conclude that globally, piracy has a
neutral effect on music sales. The positive and negative effects
would compensate each other.
The study of the Joint Reseach Center (JRC 2013) monitors
the clicks on streaming, legal downloading and illegal
downloading websites. They find that piracy has a small but
statistically significant positive effect on legal downloads. A rise
of 10% of the clicks on illegal downloading websites would
cause a rise of 0,2% of clicks on legal downloading websites and
of 0,7% on streaming ones. This effect would vary a lot between
the different countries observed. Piracy would have a more
positive effect in France and Britain than in Spain and Italy.
We can mention that the IFPI (2013) contested this study in a
public missive. They underline the lack of significance of the
“click” as measure of digital purchase behaviors, especially since
a simple interaction with iTunes, such as connecting his iPod or
listening to music, are counted as a “click”. While this argument
may be totally valid, depending on the veracity of it premises, the

23
others are more … arguable6.

E. Impact of piracy on music production and the economy in

general
Definition of the impact of piracy on sales is just one side of the
reasoning. According to the economists, the fall of music sales
caused by illegal downloading would have negative effects not
only on music production, but also globally on the economy.

1. Impact of piracy on music production

“Illegal file sharing and unauthorized copying of digital
material prevents musicians . . . from reaping the fruits of
their labor” and “has the potential to stifle artistic
creativity and compromise electronic innovation.”
Sénateur S. Brow7 quoted in Carrier (2012)
“As the entertainment industry is in the business of
experience goods, it has a tough time predicting success: a
large number of productions never break even and huge
hits have to make up for flop-related losses. And those
massive hits also have to prove that these companies can
achieve financial performances that will please their
shareholders. Both the music industry and, to a lesser
degree, the film industry stress that file sharing hits them
really hard. Rejecting the oft-heard argument that things
cannot be all that bad as their top hits account for huge
sales, these industries point out that they need the revenues
from such mega-sales to invest in new and unproven
productions, many of which will never be successful.”(TNO
2009 p.17)
The main risk of the diminution of sales would be the diminution
of the profitability of music for artists, which would harm
innovation: “Piracy’s cost is measured in less innovation and
less economic activity, as creators lose hope of making a living
from their creations.” (NY times 2011)
6 They also explain that the fact that pirates were also buyers was neither contested or new and was
counterbalanced by the non-consumption of all the others. They quote a few statistics in this way
and conclude “these results contradict the JRC’s finding that illegal downloading stimulates
digital sales”. We don't see how. Then, they underline that other studies find discordant results
about the impact of piracy on digital sales. Again, we hardly see how it could make the study less
valid. Finally, this short paper of the IFPI is a little like most albums: a few good content and a
lot of low-quality “fillers”.
7 Letter to Constituent , PROPUBLICA (Jan. 20, 2012),
http://projects.propublica.org/sopa/B000944

24
 “In the basic models, piracy is harmful to producers, which
entails negative long run repercussions also for consumers
due to reduced incentives to create.” (Piolatto, Schuett
2012)
The negative impact of the profitability of a sector on its future
productivity is widely admitted by economic theories. It will
attract fewer money and fewer people will be attracted to make
music. Therefore, in the long run, the interests of the consumers
will be harmed, because they won't be able to enjoy a lot of
musical diversity.
A study by the SNEP (2009) estimate that, in France, piracy is
responsible for the huge diminution of the number of employees
of the music labels and for the reduction of the place on the
shelves of non-specifics stores, such as supermarkets.
It underlines that the French production would have been heavily
harmed too. In 2008, the new or renewed contracts signed
between labels and artists were fewer than those which were
stopped. The number of new albums labels produced dropped
from 2535 to 1035 between 2002 and 2008. The number of new
single dropped from 784 to 159 in the same time. Finally, the
marketing investments dropped from 163 to 88 millions euros.
On the contrary, Oberholzer-Gee and Strumpf (2009)
underlined that the number of new albums monitored by Nielsen
Soundscan was doubled between 2000 and 2007.

2. The impact of the fall of music sales on the economy

According to several institutions and scholars, illegal
downloading would have negative effects on the whole economy.
The music industry would dismiss employees, who would then
consume less. The activity of its suppliers (recording material,
technicians, publicity space ...) would also be impacted. Thus, the
global economy would be harmed.
In a widely commented report, the Intellectual Protection
Institute (IPI 2007) estimated the global annual loss to 12,5

25
billions dollars and 71 060 jobs.
The “HADOPI” report, realized by Tera Consultants for the
debate surrounding the creation of the French law of the same
name, tried to make a comparable appraisal. They estimated that
French economy suffered a loss of 5 000 jobs directly and of 5
000 more jobs indirectly. (TERA Consultants 2008)
So ends the pure synthesis of the doctrine about the economic
impact of illegal downloading. However, you can already feel
that something is wrong or missing. To be able to go further in
the depths of the problem, we will need more material and more
elements of thoughts about all the relevant questions, thus
allowing us to really understand the context.

26
 II. Data about the music market and its actors
To really understand how the music market was impacted, we
have to understand its structure, how it was affected by the digital
revolution and how its actors reacted to these changes. Moreover,
how could we assess the impact on the production of music if we
don't know who the artists are? We will have to draw a picture of
their motivation and condition. Similarly, how could we
understand the impact of piracy on consumption if we don't know
these pirates-consumers? We will have to detail theirs purchasing
habits and motivations.

A. The structure of the music market

The prerecorded music market is structured by the value chain.
It goes from the creation of the content by the artist to the
distribution to the consumer, through release and promotion. 8 I
will focus on CDs, because there is a lot of literature on the
subject ; it is the most relevant, since all the studies assessing a
negative impact of piracy focus on physical sales ; and the main
damages to the industry occurred when digital sales were only a
insignificant part of global music sales.
After being created by the artist(s), the music will be evaluated
by enterprises which might want to promote it (talent scouting),
recorded, put on a support, promoted, prepared for selling (box,
jacket …) and then sent to distributors which will sell them to
consumers.
First, we will study what proportion each phase represent in the
final price of the CD. Then, we will successively study who are
the producers and the distributors, since they are by far the main
actors of the value chain.

8 For further details, a lot of papers develop this matter: Ferrier 2009, Bourreau and Labarthe Piol
2005, Bacache et al. 2010a, OCDE 2005 p. 41…

27
 1. The different phases of the value chain and their share
“Recording artists, although they supply the creativity at
the core of the record industry, rarely get royalties for
records released through major labels. In a standard
recording contract, the costs of recording an album,
promoting an album, making a music video, and tour losses
are usually “recoupable expenses.” This means that these
expenses are deducted from an artist’s royalties before he
or she gets paid.” (Boorstin 2004 p.11)
“In 37 years as a recording artist, I've created 25+ albums
for major labels, and I've never once received a royalty
check that didn't show I owed them money. So I make the
bulk of my living from live touring, playing for 80-1500
people a night, doing my own show.” Janis Ian, Performer
and Songwriter9

Bacache et al. (2010 p.19) produce the following statistics:

Percentage of the retail
price without taxes
Mechanical reproduction 8%
rights
Recording costs 12%
Fabrication costs 10%
Distribution cost 25%
Promotion cost 25%
Royalties 8%
Marge of the label 12%
The authors insist on the fact that these numbers are on average
and hide important disparities. Since most of them are fixed
costs, these percentages vary according to the number of sold
copies. They also vary according to the type of contract linking
the artist and the producer and so on.
The ADAMI, in its study realized in 2006 (p18) produces
9 Janis Ian, “The Internet Debacle – An Alternative View,” Performing Songwriter Magazine, May
2002, <http://www.janisian.com/article-internet_debacle.html>

28
different numbers. In the case of a CD whose author has an
exclusivity contract, they find:
Percentage of wholesale
price without taxes
Recording 3%
Fabrication costs 10%
General costs 13%
Marge producer (label) 20%
Promotion 16%
Distribution 22%
Artist interpret share 6.5%
Publisher share. 9%
These figures come from the SNEP, but have been reviewed by
the ADAMI. Originally, the SNEP estimated the artists share at
20%, but it didn't take in account several systematic contract
clauses. Including the impact of these clauses, the ADAMI finds
6,5%.
The OECD report (2005 p.49) summarise several studies about
this dividing up in the US and Europe of retail prices. Globally,
the constant are that, tax excluded, artists get between 5 and 10%
of the final price, composer and publisher between 5 and 9%, the
retailer between 15 and 30% and the label between 55 and 65%.
The literature is almost unanimous about the fact that artists
gets only a small part of the income on CD sales. Most of the
time, they get an advance and they only begin to earn royalties if
CD sales reach a high enough threshold. According to several
authors, this threshold would be on average 100 000 CD
(Bacache et al. 2010 about France and OECD 2005 about South
Korea).
The only discordant paper I found is the 2014 report of the SNEP,
the French equivalent of the RIAA. It underlines the results of a
study on 117 albums produced in France in 2013. The sales

29
would have represented 61,3 millions €, the net royalties 10,8
millions and the unrecoverable advance 4 millions. The total
would amount to 24% of theirs revenue. However, the study had
a limited sample, we don't know how the albums were selected
nor if there were partiality issues.

2. Music producers and distributors and theirs resources

› Oligopolistic structure of the music production
“As a result of these various facets [of the music market],
the major record labels were able to use their oligopoly
position and exclusive access to means of distribution,
production and marketing to control the industry reaping
the majority of the benefits”(El Gamal 2012 p.6)
- Concentration of the production and the distribution
Theirs is a consensus on the fact that the offer of the music
market is dominated by a little number of protagonists called
“majors”. Or, in one word, it's an oligopoly. In the 90s, there was
5 majors: Warner Music, Universal Music Group, EMI Recorded
Music, Sony and BMG. In 2004, after the fusion between Sony
and BMG they were 4 and only 3 in 2011, after the fusion
between EMI and Warner.
Bacache et al. (2010 p.19) explain this oligopolistic nature by the
fact that “[size of the scale savings on the distribution and
promotion levels and by the preemption strategies that majors
can put, are undeniably barriers to entry in recording
industry.]10” However, the small price of recording and
fabrication would allow the subsistence of a peripheral offer. It
still represent a significant part of music sales: in 2002, 16,4% of
the American market and 27,3% of the world market (OECD
2005). In France, the independent label's proportion of the market
has tended towards grow. Independents label's share of sales
went from 15,1% in 2003 to 26,6% in 2009. (Bacache et al. 2010
p.13) However this category is questionable, the majors
controlling some of them.

10 This annotation mean I translate from French.

30
 This industry has known several scandals linked to its
oligopolistic nature. For instance, the “payola” was a practice
consisting of paying radios to diffuse only the songs majors
wanted them to. Another anti-competitive practice was the
“Minimum Advertised Pricing”. It consisted in this exchange: the
producer paid back the money the distributor spent to do his
promotion if he sold no CD under a certain price. The Federal
Trade Commission forbade this practice in 200011 (Easley 2005
p.4). “In September 2003, the five major record companies and
three large music retailers agreed to a $143 million settlement of
a lawsuit that accused them of setting minimum music prices.”
(Boorstin 2004 p.37)12. According to the Federal Trade
Commission (FTC) president, this policy would have caused the
undue payment of 480 millions dollars to the consumers. Then he
declared hope that this decision would reestablish the fair
competition needed by the music market.13
› The resources of the record industry
Among the resources of the music industry, there are sales of CD,
musical DVD, streaming subscriptions and rights, related rights,
legal downloading as several products destined to mobile phones.
- CDs
Despite the fact that CD sales have kept falling since the 2000s,
they are still the main income source of music industry. In France
in 2012, they represented 364 Mn€, this is to say 62% of the total
wholesales. (SNEP 2013)
- DVDs
This medium was important at the beginning of the century; as
musical theater was trendy. In France, theirs wholesales went
from 44,1 millions € in 2001 to 104,3 millions in 2005. Then,
they dropped until reaching 21,4 millions in 2012.

11 http://www.stereophile.com/news/10744/
12 The trial being costly and uncertain for the agency as for the corporation, a wide majority of
these cases are settled through a pre-trial agreement.
13 http://www.stereophile.com/news/10744/

31
 - Music for mobile phones
These sales include whole songs, ringtones and pictures. Theirs
sales variations seem a little erratic. In France, they slowly rose
up to 28,7 millions euros in 2007, then brutally reached 44,6
millions in 2008 and fell hard, reaching 9,5 millions in 2012.
(SNEP 2013) Ringtone sales amounted, already in 2002, to 900
millions dollars in Europe (OECD 2005, p.39) and, in 2004, 3,5
billions dollars in the world (OECD 2005 p.34).
- Legal downloading
The sales of dematerialized songs hasn't stopped growing since
its apparition. In France, the wholesales went from 9,3 millions
euros in 2005 to 63 millions euros in 2012. (SNEP)
- Streaming
The progression was similar that of legal downloading: growing
fast. In France, its revenue went to 1,8 million euros in 2007 to
52,5 millions in 2012. (SNEP) On a worldwide scale, they
experienced a 55% growth between 2011 and 2012, rising from
733 millions to 1 140 millions dollars. (SNEP 2013)
- The related rights
The “related rights” are distinguished from the “authors rights”
and protect the performance of the performer, the producer of the
recording and the broadcasters. (WIPO) In this case, they are
likely to designate the revenues collectively perceived by right-
holders, such as the licenses to broadcast music in restaurants,
the tax of “private copy” weighting on the blank material used to
copy content, the revenues from televisions, concerts etc … They
represent a rising part of the revenues. In France in 2012, they
brought 101 Million € to the music industry.
I synthesized all the data I recovered from various SNEP reports
in the following table. The blank cases are missing data.

32
 Physical Legal Mobile Related
Year/product DVD Streaming
sales downloading phones rights
2001 1 18 7 ,4 5 3,3
2002 1 12 9 ,3 5 3,3 6 1,9
2003 91 62
2004 89 1 ,9 6 ,6
2005 8 28 ,5 1 04 ,3 9 ,3 21 ,4
2006 7 47 ,3 7 1,4 1 7,1 26 ,4
2007 5 96 65 1 ,8 1 5,5 28 ,7 74
2008 4 94 35 3 ,6 2 3,9 4 4 ,6 93
2009 4 71 ,8 4 0,2 8 ,8 3 8,3 28 ,7
2010 4 21 ,8 4 3,8 9 ,2 4 7,2 16 ,3 88
2011 3 83 ,1 2 8,9 3 9,8 5 6,4 14 ,4 94
2012 3 42 2 1,4 5 2 ,4 63 9 ,5 1 01
Illustration 1: Sales in value in France (Million €)
Source: SNEP reports

› Music distribution
The distribution channel and music consumption are widely
variable from one country to another. (SNEP 2013 p.64). Thus, I
will focus on France, the SNEP publishing's rich data on the
problem.
The distributors topography has changed a lot since 1990. At that
time, independents retailers represented a significant share of
sales (>10%). However, the mass retailers (specialized
superstores such as the FNAC or supermarket such as Walmart)
have taken more and more place until independent retailers
reached an insignificant volume of sales. In France, their shares
went from 10% in 1993, to 2% in 2003 (Bourreau and Labarthe-
Piol 2005p. 27), to 0,9% in 2012 (SNEP 2013).
In France, while the share of generalist superstores (Leclerc,
Carrefour …) had a tendency to grow during the 90s, the curve
reversed in 1999. At the time, they accounted for 58,8% of the
physical supports sales (SNEP 2009 p.61) and, in 2012, it was
only 39,4%. (SNEP 2013) On the contrary, the share of the
specialized superstores went up, from 29,7% in 1999 (SNEP
2009 p.61) to 51,7% in 2012. (SNEP 2013)

33
 Contrastingly, in the US distribution market of 1999, 51% of
the music was sold in music stores and 34% in general stores and
in 2003 the proportions were the opposite. (Blackburn 2004)

B. The music and the digital revolution

The digital revolution probably had an important impact on the
production and distribution costs. However, as they used to, the
majors of the music industry , acted against any change.

1. The impact of digital revolution on costs

“The music production costs began to fall sharply in the
90s, when new technologies made accessible to individuals
good recording material.” (Bacache et al.2010a)
All the studies I went through that said something about the
cost evolution caused by the digital revolution mentioned a sharp
fall of music production and distribution costs. However, this is a
complex question and this effect is not unambiguous. Whilst
most of the economist agree with this statement, Brousseau
(2008) and Menard (2011) nuance it seriously.
Technology has become much more powerful and less
expensive. The apparition of many efficient software multiplied
the recording possibilities. Digital distribution allowed the
elimination of several logistic costs, such as transport, shop
renting, unsold and so on. One of the manifestation of this cost
reduction is the development of home studio. In 2008, not less
than 39% of the musicians of the ADAMI (in France) owned one
and 60% used one. (Bacache et al. 2012)
Bourreau and Gensollen (2006) studied this question
specifically. According to them, the new technologies diminished
radically the price of recording, since the digital tapes are
cheaper than analog tapes, the hardware is cheaper and more
powerful, the software is more efficient and can even replace
hardware to a certain extent …
However, Menard (2011) and Brousseau (2008) stressed that

34
since the recording costs mostly consisted in the remuneration of
sounds engineers, it would not be significantly reduced. If
demonstration masters can indeed be cheaply produced,
professional recordings need sound engineers, whose cost isn't
impacted by innovation. About the home-studio recordings, the
author estimates that they have a peripheral role and that the
money savings it allows are not real costs reductions, because it
just corresponds to a non-remunerated work of the artist.
With regards to talent scouting, they also both underline that
scouts have only one pair of ears, so more artists to listen mean
more related costs. Consequently, Menard (2011) explains that
the broadening of the recording possibilities offered by better
software wouldn't have reduced the working time necessary for
recording, because they would cause the “the multiplication of
versions and endless finalizations”, which already occurred with
the apparition of better word processing software. About the
home-studio recordings, the author estimates that they have a
peripheral role and that the financial savings it allows are not real
costs reductions, because it just corresponds to a non-
remunerated work of the artist.
Digitalisation would also have an impact on the music
promotion. The Internet massively developed the channels of
promotion, creating a totally new way to sell music. Some might
think that it also diminished the costs of promotion. Indeed, there
are a lot of sources of promotion which don't depend on the
producer at all: blogs, forums, social networks … a lot of new
ways for the consumers to promote the music they like.
(Bourreau and Gensollen 2006) As this kind of promotion grows,
it is logical that the price would fall.
Brousseau (2008) disagreed, arguing that promotion costs
wouldn't be significantly changed either, since Online exposure
alone wouldn't be enough for an artist, television and radio would
therefore still be necessary. As for Menard (2011), he confirms
that Internet would lower the promotion costs through the

35
increase of the availability of advertising space, but that it would
also create new ones: website management, community
management …
Regarding distribution, they all agreed that, on one side digital
distribution removes a lot of costs (Shop, unsold, logistics …),
but it also brings its own costs. The downside of making the sale
of singles available online is the rise of the relative payment-
related costs. It also necessitates its own infrastructure: website,
storage, bandwidth … Therefore, the MP3 format and the DRM
also have a cost. (Bourreau et Gensollen 2006, Brousseau 2008,
Menard 2011)
Brousseau estimateed that these costs would represent 15% of the
total price, against 30% in physical distribution. For the OECD
(2005), they would represent between 15% to 25% of the price.
However, this profit would be captured by the distributor, and not
the producer, so it wouldn't have an impact on production, as the
share of the retail price earned by the label would be the same for
CDs or downloads.

2. Retrospective: The constant certitude of being on the

edge of extinction
“The “sky is falling” recording industry response to the
Internet mirrors its reaction to a range of new technologies
throughout the 20th century. Falling music sales during the
1920s were blamed on newfangled radio stations; the
Depression era decline in music sales were apparentlya
result of the invention of "talking pictures"; while a post‐
wars low down in sales during the early 1950s was blamed
on the television. The recording industry later adapted and
turned all of these new technologies to their advantage.”
(Adams and Brown 2009)
Many studies tell anecdotes on how the representatives of the
music industry manifested rejection toward technological
innovation that facilitated copying. Among other papers, El
Gamal (2012) does a good history of this struggle.
For instance, the Digital Audio Tapes recorders could be used to

36
record a sound digitally, and not analogically, which would have
allowed home-taping without a loss of quality. When they were
released, the RIAA attacked the company producing them and
they forced to stop distributing their product in the US until a
system was added to prevent illegal uses. An agreement was
found in 1992, a cassette couldn't be copied more than once and a
share of the profits were reversed to the copyright holders (!) 14.
However this material never found its audience of music fans,
“the recording industry successfully stifled the new technology,
as it never truly gained any momentum.” (El Gamal 2012 p.13)
“The release of a device (around 1900) allowing to
duplicates the cylinder on which were fixed the firsts
musical recordings caused this writing in a journal “The
pirates in this industry don't only steal ideas, they also
steal whole discs. In any other industry it is as hard to
harvest the fruits of his work than in this one.”” (Bacache
et al.2010a)
Already in the 70s, the music industry was complaining about
competition from videogames.15(Boorstin 2004) More recently,
the case of the fight against home-taping is remarkable. Home-
taping is the use of recording on a tape, usually analog. It takes
much longer than digitally downloaded copy since the copied
content is recorded as it is played and, if it is analogical, the
original and the copy diminish in quality.
Alan Greenspan, interrogated by the Subcommittee of patents,
copyrights and Trademarks about the Home Recording Act the 25
October 1983, said about Home-taping: “At present...severe
economic damage [is being done] to the property rights of
owners of copyrights in sound recordings and musical
compositions...under present and emerging conditions, the
industry simply has no out...Unless something meaningful is
done to respond to the...problem, the industry itself is at risk.”
(Liebowitz 2003) Similarly, S.M. Gortikov, at the time president

14 More thorough :
http://en.wikipedia.org/wiki/Audio_Home_Recording_Act#History_and_legislative_background
15 Mark Jenkins, “Hit Charade: The Music Industry’s Self-Inflicted Wounds,” 20 August 2002
<http://slate.msn.com/?id=2069732> (3 April 2004)

37
of the RIAA declared the 14 April 1982 :“I'm scared, and so is
my industry. Changing technology today is threatening to destroy
the value of our copyrights and the vitality of the music industry.
Our nemesis is home taping.”(Quoted by Oberholzer-Gee and
Strumpf 2009 p.4) The representatives of the industry would
even have compared the home-taping allowed by the also new
VCR for “American film producer and the American public” to
“the Boston strangler is to the woman home alone”.
(Oberholzer-Gee and Strumpf 2009 p.5)
The cultural contents industry even launched a wide alarmist
publicity campaign against this use in the 80s: “Home taping is
killing music.”16 Finally, between the 80s and the 90s, the album
consumption per capita increased by around 40% in America.
(Liebowitz 2003).
As we can imagine, the reaction was not less acute against digital
revolution's innovations.

3. The laborious birth of legal downloading

“Record executives were naturally skeptical, and
unknowledgeable, of new technologies, but Jobs was
ruthless in his pursuit of an agreement making countless
trips to the major labels in 2002.[...] Since the company
only held five percent of the U.S. personal computer
market, some labels viewed this simply as experimentation
with digital music. Warner and Universal were the first two
companies to sign on, and the remaining important players
soon followed suit.” (El Gamal 2012 p.18-19)
In 1998 the Secure Digital Music Initiative consortium began,
regrouping the majors in order to favor cooperation for the
creation of a legal offer of music download. It involved notably
the elaboration of common formats and anti-copy systems.
However, it was a fiasco and, in 2001, the majors split into two
groups (Choi and Perez 2007), one creating RealNetworks’s
MusicNet and the other Pressplay (Waldfogel 2010 p.3).
“[Finally, it is not so much copyright which slows the

16 http://fr.wikipedia.org/wiki/Home_Taping_Is_Killing_Music

38
development of legal downloading here, but the strategic
maneuvers of majors leading to non-interoperability and
incompatibility of technologies.]” (Farchy and Rochelandet 2002
p.12)
The contents of these two websites held numerous restrictions.
MusicNet permitted the user to download 100 songs each month
for 10$, but the files could only be played during a month and
couldn't be copied on a disc or a portable player (Harmon 2001).
In the end, it was more accurately described as the first streaming
service, and what majors presented as buying was more like
renting. Moreover, the number of available titles was extremely
limited, with only 75000 tracks available (Waldfogel 2010).
Pressplay was similar (Choy 2007): there was no time limit for
downloads, but you could “listen to 500 low-quality audio
streams, download 50 audio tracks, and burn 10 tracks to CD. It
didn't sound like an awful deal, until you found out that not every
song could be downloaded, and that you couldn't burn more than
two tracks from the same artist.” (PC world 2006)
Finally, we had to wait the arrival of new incomers for the legal
downloading to earn a significant place in music distribution
(OECD 2005 p.22 ; p.33 and after). Apple, which originally had
nothing to do with music if not for the iPod, did that by
launching the iTunes Store in April 2003 in the US.17
Lauren (2003 p.675), a law professor, expanded on the obstacles
set by the legislation. She wrote notably that: “The layering of
copyright interests and the complexity of the law began long
before digital technology. Digital technology, however, has laid
bare the flaws of the current system that have been created by a
process of accretion.” She assessed that the complexity of
American copyright law would largely be responsible for the
lateness in the development of legal downloading.
According to the OECD (2005 p.46 and after), the reticence of

17 Available in France/Germany/UK at mid-2004, in Canada at the end of 2004 and in Japan mid-
2005.

39
the majors would have “certainly been influenced by of the rise
of online piracy which deterred content industries from putting
content online. Moreover, the difficulty of concerted efforts
between the music majors but also the dominance by the music
majors of the physical distribution system and the promotional
value chain, which have significantly delayed a move to digital
distribution, have also played a role.”
As for the lack of success of Pressplay and MusicNet, the OECD
blamed it “on the early hour of the undertaking. With broadband
quasi non-existent in many OECD countries, slow access speeds
and the emergence of unauthorized file-sharing did not provide a
favorable environment.” However, the authors also notice that
“[t]he lack of comprehensive and integrated music catalogs
which was a result of the industry structure has certainly been
one of the more decisive factors.”

4. The struggle of countries against illegal downloading

Some countries preferred to act directly. For instance, in 2009
in France, an administrative authority was created, the HADOPI,
to monitor and repress the copyrights infringements on P2P
networks. It also had the duty to promote legal offer and produce
reports.
On the contrary, other States just published laws facilitating
lawsuits against copyright infringers. For example, the US passed
the “No Electronic Theft Act” in 1997 and the “Digital
Millennium Copyright Act” in 1998 (For more details, look
Bergman Center 2005). More widely, the extension of fixed
statutory damages started far before the 90s. They went from
250 to 10 000$ per song to 750 to 30 000$ per song. The right-
holders could ask monumental damages even without proving
any prejudice.
The “No Electronic Theft Act” made the non commercial
diffusion of copyrighted material a criminal act (only commercial

40
smuggling was beforehand18). Maximum penalties were 5 years
of prison and 250 000$ fees. However, it was mainly used in the
lawsuits between 2003 and 2008 to pressure the pirates. It is the
explanation, beside the crushing statutory damages, for the fact
that almost all cases were settled before trial.19
DMCA action was less frontal. It “makes it a crime to
circumvent the technological measures that control access to
copyrighted works. It also criminalize the manufacture and
distribution of any technology or tool designed to circumvent
encryption technology [...].” It also regulates music streaming
websites. If it's a web-radio, the consumer not being able to
interact with the content, then the website “only” has to pay a
statutory license but not only to the composer, as usual radio, but
also to labels and recording artists. However, if they can really
choose what they listen to, then the website must negotiate with
each right-holders of the diffused material. (Bergman 2005 p.8)
Anti-piracy struggles also mobilized international forces.
Recently (2011/2012), the Anti-Counterfeiting Trade Agreement
(ACTA) was signed by 30 countries representing more than 90%
of the world sales of music. This treaty notably obligates the
Internet access providers to cooperate. However, only Japan
ratified it.

5. The lawsuits of the RIAA

The music industry is also a decisive actor in the anti-piracy
struggle. Through associations which represent its interests (IFPI,
RIAA …), it sued websites, Internet access providers,
universities, enterprises and people. (OECD 2005 p.110 and s.)
It fought against the MP3 format at its creation. Then, it asked for
a temporary restrictive order against the “Rio Portable Player”,
the first massively produced MP3 player, in 1998. 20 This claims
was however rejected by the judge, as the device offered
18 US v. LaMacchia de 1994 (871 F. Supp. 535 (D. Mass. 1994))
19 http://www.law.cornell.edu/uscode/text/17/504 For further detail, consult this link :
http://www.riaa.com/physicalpiracy.php ? content_selector=piracy_online_the_law
20 http://testedonkids.net/mtok/home-taping-is-killing-music-piracy-and-the-m

41
consistent legal use.21 (Litman 2006)
The RIAA sued Napster in December 1999, as soon as 5 months
after the website was born. From its ruins the “sons of Napster”
soon rose, among which Kazaa, Morpheus and Grokster, which
the RIAA also sued. However, they learned from Napster's
example and the flux went only from consumer to consumer.
They only managed the software allowing to do so. And even if
they were shut down, theirs software could still work.
In 2003, the RIAA also began to sue the end-users of such
software. This lawsuits campaign lasted until 2008, five years
during which 35 000 people were sued by the RIAA. (Oberholze-
gee and Strumpf 2009 p.10). It happened with wide media
coverage. We consider that it was a way to push people towards
legal downloading, the iTunes store having been launched in
April 2003, and inform people of the illegality of piracy.
However, the press didn't only relay the message of the music
industry, but also the unfair situations it induced.22 One of the
most unfair and the most diffused situation is probably the Mrs
Ward's one, which was published into the New York Times.
(Schwartz 2003)
“Mrs. Ward, a 66-year-old sculptor and retired schoolteacher,
received notice on Sept. 11 from the [RIAA] that she was being
accused of engaging in millions of dollars worth of copyright
infringement, downloading thousands of songs and sharing them
with the world through a popular file-sharing program called
KaZaA.” However, in addition to her total lack of computer skill,
her computer was a Macintosh, on which KaZaA couldn't work.
Luckily for her, she had “several lawyers in her family, and a
son-in-law, Dan Levy, who is knowledgeable about the Internet
and the file-trading wars.” The old lady told how “she has been
shaken by the accusation and threat of heavy penalties, which
left her unable to sleep.” In addition to the obvious absurdity of
21 180 F.3d 1072 (9th Cir. 1999)
http://www.law.cornell.edu/copyright/cases/180_F3d_1072.htm
22 http://online.wsj.com/news/articles/SB122966038836021137

42
the lawsuit, the RIAA didn't apologize, dropping it 2 weeks after
and still stating “We have chosen to give her the benefit of the
doubt and are continuing to look into the facts".
She concludes with a very evocative question: “We had
emotional support and very skilled resources to turn to. [...]
What happens to people who don't have that in their life to clear
their names or defend themselves?" (Schwartz 2003)
Almost all suits have been settled before trial for several
thousands of dollars, depending on the importance of the
infringement. Only two went to courts: the Thomas and
Tenenbaum cases.
— The Thomas case
Jammie Thomas-Rasset is a single mother of four children, who
worked as a natural resources coordinator. “The plaintiffs alleged
that on February 21, 2005, Jammie Thomas shared a total of
1,702 tracks online; however, plaintiffs sought relief for only 24
of these.” She refused the settlement and went to court. She was
convinced and the statutory damages fixed at  $222,000
($9,250/song) in September 2007. She contested the decision
and, as the result, the jury rose the price /song to $80,000, which
meant a condemnation to $1,920,000. The judge M.J. Davis
reduced this price to $2,250/song, for a total of $54,000. The
right-holders contested it, obtained again a huge amount
compensation from the jury and the judge, again restricted it,
arguing that the damages were too excessive to be constitutional.
Finally, on the 11 September 2012, the jury decided on  $222,000
($9,250/song)23.
— The Tanenbaum case
In 2003, a demand for $3,500 was received at Joel Tenenbaum's
parents' house for songs that the 20-year-old son had allegedly
downloaded. He was first convincted for 30 downloaded songs
and condemned to pay $675 000 ($22,500/song). Then, as in the
23 http://en.wikipedia.org/wiki/Capitol_Records,_Inc._v._Thomas-Rasse
http://www.wired.com/2008/09/proving-file-sh/

43
Thomas case, the penalties were widely diminished by the judge,
what was contested and another jury heightened it again, two
times. Finally, in 2013, this penalty was upheld.24
Thus, only two cases, among thousands, went to court. The
reasons are the cost of hiring a lawyer would be higher than the
payout of the lawsuit, there was a possibility to be penally sued
by a procurer and the penalties the right-holders could ask in
front of a jury were, as shown in the cases Thomas and
Tenenbaum, tremendous.
Lawsuits were launched in Europe as well, but at a much
narrower scale25. (OECD 2005)
The music industry also publicized the illegal nature of file-
sharing, because the illegality of piracy was very unknown
before, even if P2P was famous. It may sound a little strange
now, but, in fact, it is very comprehensible because of the
numerous exceptions of American copyright law. They are the
fruit of superposed layers of negotiations between the different
stakeholders (television, artists, labels, composers, publishers,
distributors …). Finally, they are so many, so complex, and
appearing incoherent, that it was a blurry question even for
experts. No wonder that common people had such a hard time to
do so too. (Litman 2006)
A pretty fantastic episode was highlighted in one of the Judge
Gertner's decisions. In 2000, during a session of a comity of the
Federal Senate, in order to demonstrate how easy it was, a song
was downloaded through P2P. When the illegality of the act was
underlined, one of the two senators presiding the session said that
he downloaded and manifested his enthusiasm for this practice:
[W]hen I go on college campuses, as many of us do, to talk
and everybody is talking about what they have
downloaded, how they share, and so on, and when my kids
pick up a “Black Muddy River,” which happens to be one

24 http://en.wikipedia.org/wiki/Sony_BMG_v._Tenenbaum
25 For example, in France: : http://www.liberation.fr/economie/2005/02/03/15-000-euros-pour-un-
pirate-au-hasard_508314

44
 of my favorites of the Dead, and send it to me -- they have
heard a new version -- and I log on in the morning while I
am having my breakfast and there it is, I mean this is a
whole different world, and I think we have to recognize that
on where we go. Sénateur Leahy quoted by judge Gertner
(2010 p.37)
Several awareness campaign were launched. They were
especially numerous in 2003, to support the apparition of the
iTunes store. For instance, the campaign “Keep music coming”
used all kind of media to educate the Canadian youth that
“through music purchases, they helped artists to create more, and
gave new artists the opportunity to be heard.” (IFPI 2004) An
educational campaign “Get It Right!” in the Netherlands was
launched with the support of the music industry and the
government to explain the copyright laws to 14-15 years old
teenagers through schools. The schools were also used in
Singapore to diffuse the message. In Japan and Belgium, the
industry focused more on publicity campaign through television
and radio. The “Copyright Use and Security Guides” was sent to
thousands of universities, administrations and companies in 21
countries. This guide encouraged the development of educational
policy towards their workers or students, underlining the possible
risk of letting them pirate. Instant messages were also sent
“through P2P networks to the users seemingly sharing
copyrighted music”. (IFPI 2004)
Despite all these efforts, the percentage of people aware of the
illegality of file-sharing only went from 37% in 2003 to 73% in
2008. (Moseley 2010 p.22)

6. The Digital Rights Management (DRM) technologies

In order to circumvent illegal copy, digital contents were also
protected with mechanisms limiting the possible uses of a
copyrighted content.
For example, here are the restrictions that songs bought on
iTunes bore until 2009:

45
  “Users can make a maximum of seven CD copies of any
particular playlist containing songs in the m4p file format
purchased from the iTunes Store.
 Users can access their purchased songs in the m4p file
format on a maximum of five computers.
 Songs in the m4p file format can only be played on a
computer with iTunes or an iPod; other MP3 devices do
not support FairPlay encoded tracks.” (Wikipedia26)
The limitations of the songs downloaded from Pressplay and
MusicNet are also DRM systems. Usually, we just call them
DRM.
However, the issue (for film piracy, also applicable for music)
is that “no DRM technology is available 100% of the time, or
100% effective when it is available. Some leakage is inevitable.
And therein lies the problem. When movies leak out of a
protected environment, whether through hacking of DRM
measures, theft of unprotected copies [...], or other means, they
can be instantly made available to literally tens of millions of
people over the Internet, instantaneously and with little or no
degradation of quality.” (Representative of the MPAA,
Subcommittee on Courts, the Internet, and Intellectual Property
2003)
The pirated files would be DRM-free, which would be an added
value compared to limited legal download. Several scholars
underlined that, thus, they would be rewarding pirates and
sanctioning legal users.

C. The artists
I will frequently refer here to the studies of Bacache et al. (2010
and 2009), which are grounded on a survey sent in 2008 to 4000
French artists and interpreters associates of the ADAMI. 700
exploitable answers were returned. The associates of this
association are “professional” interpreters of music who
26 https://en.wikipedia.org/wiki/ITunes_Store#Digital_rights_management

46
“[already participated to a disc having been commercialized
through the traditional channels.]” (Bacache et al.2010a p.8)
Artists are not very integrated in the music industry. At the
time of the study, a lot (more than 66% In France) did not have
agents nor managers and only one artist on 5 was in contract with
a label. Between those 20%, only 27,7% also had a contract the
year before. The apparition of affordable home-studios (between
1500 and 4000€ according to Bacache et al. 2010b) made much
more accessible the auto-production, a choice that half the artists
make. (Bacache et al. 2012 p.46)
Their musical income structure shows this low rate of
insertion in the industry. Concerts are the main source of musical
income for 65% of the associates of the ADAMI and the second
one for 22% of the others. After this comes the rights paid by the
companies perceiving several taxes or fees for the right-holders
and the music lessons. These are respectively one of the main
sources of musical revenue for 60,2 % and 48 % of the artists.
Finally, the royalties and advances were one of the 2 main
revenue sources for only 22,8% of the questioned artists.
(Bacache et al. 2009 p.18) According to Bourreau and Gensollen
(2006 p.23), the revenues from the audiovisual records of
musicians represented 10% of theirs global (probably musical)
income in 2000, against 76% from live concerts.
On the subject of income, the artists would be poorer than most
other workers, even though they are more likely to have a
university degree. Thus, in France one in two artists earned less
than 15 000 € a year and a quarter earn less than 9000€ a year.
The only average incomes below this were those of the
unemployed and the farmers. (Bacache et al. 2010a) Additionally,
most of them had a job alongside their activity (Bacache et al.
2010a). Oberholzer-gee and Strumpf (2009 p.24) also mentioned
a PEW survey which found that only 16% of the artists would
earn more than 60% of their income from music. This low
percentage was not even due to poor practice, since it increased

47
to only 22% for people practicing more than 30 hours per week.
This work being as it is, pretty ill remunerated for the time and
financial investments required, leads us to question the artists'
motivation. The article of Cowen and Tabarrock (2000) develops
the idea that artists “face choices between the pecuniary benefits
of selling to the market and the non-pecuniary benefit of creating
to please their own tastes”. H.Becker, in Outsiders (2012)
explained that the musicians he studied faced the same kind of
choice: either produce something “commercial” or good
music/”jazz”. The restriction of their artistic freedom seems to be
the origin of a despise toward non-musicians.
On this matter, Bacache et al. (2009 p.53) show that the financial
interest doesn't have a determinant place in the choice of auto-
production. The independence and the wider control on the
nature and quality of the production appear to be much more
important motivations.
Bacache et al. (2009 p.65 and s.) distinguish 5 categories of
artists: the elected, the artisans, the professionals, the innovators
and the excluded.
The “elected” would be the artists having the most musical
revenues and the most institutional recognition, such as pop-stars
or successful classical musicians. They represented 5% of the
artists.
The “artisans” are characterized by the fact that, if they don't like
the unauthorized diffusion of videos of their performances, it is
because they fear their poor quality could harm their reputation.
They can live from their practice, earning 15 000 to 60 000€/year
from it, and give a lot of live performances. They represent 20%
of the artists.
The “professionals” are better integrated in the music industry
and contract more with the labels than the artisans. They have
similar revenue and can live off their music. They represent 20%
of the artists.

48
The “innovators” are more tolerant towards piracy, as they are in
difficult financial situations, they often use digital forums
(Myspace, home-studio) and auto-produce. They account for
25% of the artists.
The “excluded” represent 30% of the artists, and give few
concerts, don't earn much from their musical activities and don't
use digital tools. They have a tendency to auto-produce their
albums and have rarely been under contract with a label. They
are the group who reject the most fervently illegal downloading
because of the fear of a loss of revenue.

D. The pirate
Knowing the proportion of pirates in the population, their
profiles and motivations could be a key element to understanding
the impact that illegal downloading and the anti-piracy policies
could have had on sales. Generally, studies call a pirate someone
who downloaded illegally at least once in the last
month/6months/year.

1. The proportion of pirates

The estimations of the proportion of pirates in the population are
very variables. However, it is unanimously admitted that it is a
widespread phenomenon. I summarised them in the following
table:

Source Geographic area Year Percentage and/or

volume

PEW 2000 US 2000 13 million (4,6 %)

Ipsos, Tempo US 2002 18% of Internet

users

Peitz and US 2003 11,4 million (3,9 %)

Walbroeck 2004

Berkman Center US 2004 34,3% Million

49
2005 (29% of the Internet
users)27

Indicare 2005 Europe 2005 23 % of the Internet

users

OCDE 2005 World 10 million,

including 5 in EU, 1
in Germany and 0,8
in Canada and
France

Marsouin 2008 France 2008 30 %

(utilisé par Dejean
et al. 2010)

GfK 2008 (used by France 22 % (Of Internet

Bastard et al. 2012) users?)

SNEP 2009 France 2009 8 million, 12,4 %

SNEP 2013 France 2013 9,1 million, 14 %28

To appreciate these results, we have to keep in mind that there

are differences between regular and occasional pirates and that it
is not a constant activity: you can be pirate at one time and not
being one at another. It is problematic that papers are rarely
precise about these differences. They are even less precise about
the form of piracy that they are (or not) referring to (direct
download, P2P, streaming …).
Globally, we can estimate the number of pirates between 5 and
10% of the total population of US and France. I don't have exact
numbers for the others.

27 Including 18,6 millions visiting piracy websites less than once a week, 10,4 million 1 to 4 times a
week and 5,3 millions 5 to 7 times a week.
28 Among them 50% would use cyberlockers and 32% P2P.

50
 2. The pirate profile
“Consumers who download tend to be aficionados of
music, films or games, which therefore play an important
role in their daily lives.” (TNO 2009)
Globally, a lot of studies let us think that the typical pirate is
young and overrepresented among students. According to the
SNEP (2013), the average age of a pirate is 31 years, against 43
years for legal downloading. This age difference appears also in
the article of Coyle et al. (2009). They used less frequently the
P2P (-26% between 2010 and 2013, against an overall increase of
14% of piracy; SNEP 2013) and more frequently direct
downloading. In the survey realized by Ipsos in 2002, the
Internet user pirating music were 48% of 12-17 year olds, 42% of
the 18-24, 19% of the 25-34, 11% of the 35-54 and 3% of the
55+. Thus, the prevalence of young people is massive.
The studies are unanimous on the fact that pirates consume
more cultural products (music-excluded) than non-pirates.
According to TNO (2009p.74), the typical Dutch pirate buys
50% more films or games than the non-pirates. Just restricting to
15-24 years, the difference grows stronger, with the pirates
buying 120% more films and 75% more videogames. They
consumed many more products linked to recorded music, such as
concert tickets (3,8/year against 1,6 for non-pirates), T-shirts,
posters …
On the contrary, the question of the pirate's music consumption
is a little controversial. According to TNO (2009 p.74), Dutch
pirates would have bought a little less albums on average, but if
they are between 15 and 24 years old, they would, paradoxically,
have bought 50% more music albums than non-pirates.
According to Dejean et al. (2010 p.5), 47% of the pirates using
P2P would buy digital music, against 17% for non-pirates.
Zentner (2006) finds that the American pirates students in his
survey are 20% more likely to have bought music the month
before than non-pirates. According to the JRC (2013 p.9), people

51
using illegal downloading websites would have a greater
tendency (+10%) to consult legal downloading or legal streaming
(+40%) websites.
On the other hand, Rob and Waldfogel (2004) find that, among
the students they questioned, the pirates buy less music than the
non-pirates. The IFPI (2013) also stated that “recent data from
Kantar Worldpanel in the UK based on music purchases (actual
spend, music-based measure - a more appropriate data source
for this type of analysis) highlighted that while some file-sharers
spend a lot on music (physical/digital), this is counterbalanced
by many file-sharers that don’t buy any music - as many as
44.8% of file-sharers in the UK buy no music at all.”
It used the results of TNO (2009), which found that “37% of
music file-sharers never subsequently bought the content they
downloaded illegally and a further 30% bought only once or
twice, meaning a total of 67% of file-sharers never/rarely
subsequently purchased songs they had pirated.” It also
mentioned another study, according to which “In Australia, 57%
of P2P users were found to rarely/never purchase songs they had
downloaded.”

3. Motivations of pirates
A survey conducted by the French HADOPI (2014 p.22 and 44)
found that, among people practicing both legal and illegal
downloading, the most commonly mentioned motivations were
“Because the artwork pleases me most”, “To help the young
artists, producers, developers”, “By respect for the authors, the
creators”, “To be inside the legal lines” and “To have a better
quality good”. On the other hand, the motivation deterring pirates
from legal consumption would be the price (58% of the
respondents), the habit (41%), the insufficiency of the offer
(35%) and, for 23%: “No need for contents in which I have low
interest.”
This data manifests as an important part of the intrinsic

52
motivations. The latter are defined by Deci (1971) as: “One is
said to be intrinsically motivated to perform an activity when he
receives no apparent reward except the activity itself.” In the
HADOPI study we just described, the only extrinsic interests
recorded were be “To have a better quality good”, the price and
maybe the habit.
In the survey realized by Ipsos (and quoted by Peitz and
Walbroeck 2004b) in 2002, the music downloaders29 declared to
pirating “music that is not easily available in stores” (65% of
approval) or “that [they] want, without having to buy an entire
album” (69%), or because they “like being able to sample music
online before making a purchase decision” (73%).
Bounie et al. (2005) sample people of French graduate schools
and finds two categories of pirates: the explorers and the pirates.
The firsts would use illegal downloading to extend their horizons
and orientate their future purchases and the seconds would use it
as substitute to purchase.
The study of Bagnasco (2010) is very interesting and detailed,
using a complex statistic system to draw its conclusions.
However, it deals with movie piracy and not music piracy. In the
hypothesis that it would likely be similar, we will still summarise
it. The people pirating movie could belong to one of four
categories:
- The “Seekers” represent 20 % of the pirates. They would
mainly, if not only, be motivated by the poverty of legal
offer, searching mainly films unavailable through legal
channels, and know the illegality of files-sharing.
- The “Savers” represent 15 % of the pirates. They would
simply be motivated by the savings piracy allows.
- The “Demanding” ones represent 54 % of the pirates. They
would agree to pay, but are dissatisfied with the time
movies and series take to be viewable in their countries
29 We can notice that they don't precise if it legal or illegal, which was logical since legal download
was insignificant.

53
 through legal channels. So they use piracy to see them
quicker.
- The “Lazy” ones represent 11 % of the pirates of the
sample and would be mainly motivated by the ease of use
of piracy.
This closes the examination of the music market and its
protagonists and, more widely, all the first chapter destined to
establish the data on the subject. Now, we will interconnect and
analyze them.

54
 Second chapter : Exploitation of the data
We can distinguish three phases in the doctrine's reasoning: first,
establishing the existence of a correlation between piracy and fall
of profits ; then the transformation of this correlation in a
causality ; finally, establishing the fact that a fall of profits brings
a fall of artistic productivity and, more widely, diminishes the
efficiency of the music market.
If we study this reasoning with care, we see clearly that it is, in
fact, significantly flawed.
For the first phase, the variable used as an indicator, the fall of
sales, doesn't account for the profit, without mentioning the
expenses, and is in the same time too wide and too narrow,
including the fall of tapes and singles and excluding some
revenues of music industry.
For the second phase, the causality is insufficiently grounded,
either their use of controls induces bias, or they leave important
bias totally without control. Then, no one checks if most of the
variables are taken in account, for example by verifying if the
equation can explain anterior variations.
For the third phase, the effect of an hypothetical fall of profits on
production is mostly presumed and several empirical facts
support the opposite thesis.
Globally, we can extract four main transversal flaws:
— Poor perception of technological changes (I.A.1 ; I.A.3 ;
II.B.1 ; II.C)
— Total ignorance of the actions of music industry (I.A.2 ; II.D ;
II.E.3).
— Poor control of important bias, such as income (II.A), interest
for music (II.B) and the impact of substitutes (II.C.2).
— Ignorance of the socio-economic reality and motivations of
artists (III.A)

55
56
 I. Questioning the alleged correlation between piracy
and the fall of profits
The first branch of the reasoning concerns the existence of a
correlation between piracy and fall of profit. To establish it,
studies unanimously use the sales as indicator. Scholars get theirs
values or volumes from either national wholesale data,
Soundscan retail data or declared purchases in surveys. They
compare it to the volume of piracy.
However, using sales as indicator totally omits the question of the
costs, which can vary for a lot of reasons, such as management
modification or technological innovation. The methods, surveys
as national statistics, to evaluate the sales present significant
flaws.
The tools used to measure piracy don't seem to be efficient, since
theirs results fluctuate widely. Moreover, the concept of piracy is
not always the same, its definitions and limits vary from one
study to another.
A direct way to establish the responsibility of piracy in the fall of
sales would be to show the positive effect of anti-piracy policies
on sales. We will show this method is seriously flawed too.

A. Sales, a flawed indicator inaccurately accounting for profit

All the studies ground their assessment of a fall of profits on a
fall of sales, but profits are the revenues minus the expenses. The
revenues of the music producers are not limited solely to record
sales and we cannot, anyway, establish the profits since there is
no information about the related expenses.
Beyond the methodological concerns, some empirical evidences
suggest that music producers diminished theirs expenses by
reducing activities and because of technological innovations.

57
 1. Sales, an indicator too wide to be significant and too
narrow to account for the fall of profits
Sales are not the only source of income of the music industry.
There are others like the transfer of rights or the revenues coming
from the private copy tax. In France, they represented nothing
less than 18,2% of the revenues of the music industry in 2013
(SNEP 2014 p.8)
Liebowitz (2003) tells us about the imprecision of the notion of
sales. We have to know if we are talking about units (volume of
sales) or their value. Then we have to question: is it pertinent to
include all kinds of sales? Even singles and cassettes? Liebowitz
answers no, the decline of the sales of these supports having
begun long before the apparition of the P2P.
Let's look at the data given by the IFPI (2001) for the year 2000 :

CD Cassettes LP Singles
Variation +2,5 % -9,4 % -13,3 % -14,3 %
Units sold 2,5Md 0,8 Md 10 Mn 0,4Md

The number of album CD sales should have risen by 2,5% in

2000, but they accounted for only 75% of the unit (and value)
sales. The bad results of micro-cassettes and singles sales made
the retail sales fall by 1,2% (and value by 1,3%). In 2003, micro-
cassettes still represented 14,7% of the unitary sales of
prerecorded music (OCDE 2005 p.20). This argument invalidated
the studies of Peitz, Walbroeck (2004) and Zentner (2005), which
concerned world sales without taking off the obsoletes supports.
On the contrary, this bias is not significant for the studies using
US sales, since purchases of micro-cassettes were insignificant in
2000.
However, this problem is not limited to the case of micro-
cassettes. More recently, we have had to deal with streaming
subscription, sales of music on phone and sales of musical

58
DVD30.

2. Ignorance of the expenses of music industry

Several paper assess the diminution of expenses of majors.
However, there is no indication of the origin of these reductions:
lower activity? Technological innovations reducing costs?
Changes in management?
Let's assume that music industry focus on a narrower number of
artists in order to maximize the scale savings (in other words,
that the star-system was accentuated). Global sales would
diminish, but profits would rise. The SNEP itself wrote “if the
number of projects diminished with the evolution of the market,
the artists under contract are more accompanied and invested on
than before.” (SNEP 2014 p.21) Bourreau et al. (2011) confirm
that “Everything happened as if the promotional effort of majors
focused on a smaller number of titles, which take an even bigger
share of the sales.
In this hypothesis, global sales and profits would follow opposite
trends.
The question could be: is the illegal downloading responsible for
this reduction of expenses? Well, we have no idea, since nobody
went as far as assess this important question.
An explanation of this fall could be the accentuation of the
star-system. It consists of the concentration of the means of
production and, especially, the promotion of a fewer number of
artists to maximize scale savings. This system focuses on
curiosity and social group movement. “We see it everywhere, it
has a lot of fans, then it must be good.” This kind of musical
work precisely doesn't seem to be very compatible with the
sampling effect of piracy. While the first relies on curiosity
created by mass effect, putting a wide distance between the fans
and the artists, the second allows us to experience it beforehand
and to support the artists we like/feel close to. The
30 The latter represented nothing less than 4 % of unit world sales in 2004 (OCDE 2005 p.20).

59
incompatibility of these two aspects is obvious, and an
accentuation of the star-system is likely to result in an
accentuated fall of sales because of illegal downloading.

3. The probable diminution of costs thanks to

technological innovation
“[The effects of digital technologies on production are
paradoxical: gains in productivity due to technological
progress, but with a tendency towards growth in production
costs. […] We could produce today much cheaper than we
produced yesterday, but the mutations of the
commercialization modality oblige a constant redefinition
of the products.]” Chantepie and Le Diberder (2010) about
numeric contents.
We already explained that the music industry has experienced
massive technological changes these last 20 years and that these
changes had a complex effect on costs, different for each phase
of production (supra, S1.II.A.4.).
› Talent scouting
By diminishing the recording cost of masters, the digital
revolution weakened the barriers to enter the market. Thus, more
masters were sent to the editing houses to be published and
examination costs rose.
On the other hand, the Internet allowed the development of
forums and the apparition of the “buzz”. The costs of
examination are then entirely supported by the consumer, who
listens to the song and manifests their approval or not. Editing
houses could use that to choose which artists sign and drastically
reduce theirs talent scouting expenses.
Besides, it is important to underline that only small labels are
exposed to these costs, majors publish only already successful
artists.
› Recording
The enhancement of recording possibilities by the digital
revolution has technically allowed work to be better whilst using

60
less time and skills. Therefore, recording costs should have been
lowered. However, Menard (2011) argues that quality is
evaluated in comparison with concurrent products. Thus, what is
judged as “good” quality would have become higher with the
rising quality of the equipment.
This automatic link between consumer exigence and equipment
quality seems a little preposterous as assumption. Besides, what
is considered a “quality” recording? Many prefer the old records,
even non remastered, of Georges Brassens, Jacques Brel or Louis
Armstrong to a song by Justin Bieber or Miley Cyrus, which
would have benefited from the best post-production possible.
Menard (2011) assesses that recording costs are mainly due to
the remuneration of the workforce. The multiplication of
recording possibilities thanks to the digital revolution has
probably increased the recording times. So the costs would have
been actually increased, the diminution of the costs of equipment
would not be high enough enough to compensate for the
necessary workforce surplus.
This argument is solid, but doesn't concern auto-production. A lot
of artists (>50% in France) record their work in a home-studio
and do their own editing (ADAMI 2009). Menard argues that it is
a hidden cost and draws a parallel between the time spent by the
artist and the cost of a sound engineer. This assumption seems a
little hasty and hazardous, as there is an added value for the
artists of keeping the whole control of their work, not having to
contest the editing choices of an outside engineer … Moreover,
their artistic activity is already time-consuming, not really
profitable and very uncertain. So it is likely that artists would
largely prefer, when they have the required skills, to use their
time for their work rather than taking the financial risk of hiring
someone.
› Promotion
Before the Internet, music promotion channels (television and
radio) were limited. The Internet considerably changed the rules

61
and opened the perspectives (Bourreau and Gensollen 2006).
This channel, much like the attention of the consumers, is not
infinite: the space on each site is more or less limited. For
example, on Google, Youtube or Facebook, labels can buy their
visibility, which is like the traditional system with television and
radio. However, the Internet is huge, and also allows niches to be
developed on a wider scale. Many artists would probably have
had less success without their Myspace page or the promotion of
Soundcloud.
More importantly, the Internet has modified the consumers' role.
After being traditionally passive, they became active. Active as
buyers, because they can learn, compare and choose more
products and can search for content, instead of being found by it.
Active as a prescriber too, as they could share their tastes on
social networks, forums, comments on commercial sites … These
mechanisms vastly enhanced the visibility of music and
diminished the need to use traditional media and, especially,
offers the possibility not to do so.
To summarize, the Internet created, not only enrichment of the
publicity space similar to what already existed, but also the
apparition of a parallel and consumers-based promotional system
widening the possibilities for niche artists to find their audience.
Thus, it would have seriously weakened the hegemony of majors,
which was likely to be due to the lockout they had on traditional
promotion ways.
As examples, I think to two artists which profited a lot of this
parallel system: The Arctic Monkeys and Lana Del Rey.
The Arctic Monkeys experienced success with a single, which
was widely diffused on the radio 31. Later, they released their first
album “Whatever People Say I Am, That’s What I'm Not” free
for download before its release for purchase: they had to
postpone the release for purchasee for 18 days to fulfill all their
pre-orders … The sales of this album were a new world record of
31 http://www.theguardian.com/music/2005/oct/25/popandrock.arcticmonkeys

62
sales for a first album, widely surpassing the previous one. 32
Even though they had media coverage, the magnitude of their
success can only be explained by the viral dynamics induced by
the social networks.
Lana Del Rey experienced several failures earlier in her career
and made it only thanks to the buzz created by her song “Video
games” published on Youtube. It doesn't appear that the
traditional medias had anything to do with this success.33
› Digital distribution
We have already said that dematerialized distribution eliminated
several costs (inventory, logistics and the physical shop) and
made new one appear (transaction, site management). However,
it seems likely that costs related to numeric sales are far lower
than those related to physical distribution. Supporting this
assertion is the fact that, in France, a downloaded album costs
30% less than a CD album (9,59€ versus 13,68€, SNEP 2014
p.39)
› Overall impact
Considering all of these elements, it seems likely that the digital
revolution diminished significantly the overall cost of
production. It is, incidentally, what the crushing majority of
scholars on the subject say (that is to say a lot of them, as most of
the scholars writing on the subject of economic impact of piracy
agree).
However, we have to admit that talking about “the cost of
production” is not totally pertinent. Indeed, a big production
won't have the same costs structure as a smaller niche song.
While the main costs of the first one will mainly be the visibility
and the editing, those of the latter will be the artist himself, his
research and learning process. It's for them that the digital
revolution brought the newest opportunities.
I think the most important impact is on the level of promotion
32 http://fr.wikipedia.org/wiki/Arctic_monkeys#Premiers_disques
33 http://fr.wikipedia.org/wiki/Lana_Del_Rey

63
and in the change of the consumer's place. It could deeply affect
the structure of the market and modify the relationship between
the artists and the listener, putting aside the label.

B. Sales, a data set difficult to monitor

To assess the volume of sales, scholars use macroeconomic and
microeconomic data. Both of these methods have theirs flaws.

1. Questioning the macroeconomic data of music sales

Scholars use either the data of Nielsen Soundscan, monitoring
sales to the consumer, or the data of the RIAA, accounting for the
wholesales.
› The imperfect monitoring of Nielsen Soundscan
Nielsen Soundscan measures the music sales by retail outlets.
Then, we have the geographic location and the exact time of the
purchase behavior. However, Liebowitz and Zentner criticized
this data:
“SoundScan, although it includes Internet retailers, does not
include information on nonretail outlets such as record clubs and
direct selling on television, which were responsible for 25
percent of all units sold in the late 1990s.” (Liebwotiz 2006
p.14)
“Nielsen tracks sales of music by sampling retail stores that sell
music, and thus the data does not include the entire universe of
retailers. Importantly, the retail landscape has changed very
rapidly and significantly in the past decade. Due to these
unprecedented changes in the retail business it is likely that the
data contain large errors in the year-to-year measurements if
there are lags between the time when the changes in the retail
outlet composition take place and the time when they are
accounted for by Nielsen’s methodology.” (Zentner 2010 p.12)
However, this source of data is rarely used, scholars and
institutions prefer widely the wholesale statistics of the RIAA.

64
› The temporal bias of the wholesale monitored by the RIAA
The RIAA provides data on a number of sales from the music
labels to the retailers and not directly on consumer purchases.
Thus, it informs us of the behavior of retailers, but not of the
consumer's behavior. Thus, there is a temporal bias between the
album's purchase and its sale by the retailer; and between what
the retailer expects to sell and what he actually sells
Thus, in order to evaluate the impact of an event, economists
should take into account this latency. For example, before
imputing the decline in sales to the arrival of Napster, Liebowitz
(2005, 2006) should have taken in account the time for people to
change their purchasing behavior, then the time for retailers to
adjust their orders. This flaw evenly concerns the paper of
Bhattacharjee et al. (2006a) about the effects of legal repression.
The bias induced by this mechanism is not only temporal. If
retailers have unsold stock, they will overestimate the previous
sales and may decrease their future purchases, since they will try
to sell their unsold stock first. Thus, the wholesale indicator has
serious flaws blurring the moment and magnitude of the decline
in sales ; flaws which should have been taken into account and
are ignored by scholars. Of course, this bias doesn't apply to
digital sales.

2. Questioning of the monitoring of sales through

surveys
Surveys have the advantage of providing immediate
information on the object observed and the retail sales, instead of
wholesale.
However, they have their own weaknesses. Besides the problems
due to the formulation of the question and the representativeness
(which we already saw and are unanimously admitted), I suspect
the existence of a temporal bias (yet again): the decision to
purchase and the purchase itself would not happen at the same
time. This argument may seem a little doubtful, but it is really

65
interesting and it raises a question: what is purchasing? Is it the
moment where you pay, or should we include what happened
before? What if the purchase is just postponed?
“In the longer term, there may even be a positive effect of
free downloads on P2P networks due to an income effect.
Indeed, by downloading free music, teenagers and college
students can acquire information on the songs and albums
that they like. As they become older and increase their
purchasing power, these internet users may “legalize”
their music archives. In this case, teenagers and college
students only temporarily reduce their spending on pre-
recorded music.” (Peitz And Walbroeck 2004b)
I will illustrate this with the example of Marcel, an American
pirate student. Because he wants to attend the concerts of his
favorite DJs, to buy a new laptop or his textbooks and dining out,
he is reducing the most dispensable expenses. Fortunately, he has
broadband access and can download music through P2P. Thus, he
doesn't have to purchase albums to keep enjoying music. A few
years later, after having completed his studies and got a qualified
job, he will have enough money for an easy life. Then, he will go
on to like what he has ever liked and finally buy the CDs that he
could not afford before, or buy new ones, for he is still fond of
music.34
This temporal bias would mainly concern students, but could
concern young couples with young children or those
encountering sudden unemployment, etc. It may seriously
undermine the pertinence of several important studies, as most
surveys (Rob and Waldfogel 2006, Zentner 2006, Waldfogel
2010) rely on students' testimonies.

C. The fluctuating quantifications of piracy

The definition of piracy is often a little blurry, sometimes
including only P2P, sometimes P2P and direct downloading …
Another problem arises once we have a definition of piracy. Most
34 Well … except if in the meantime, he was sued by the RIAA, which would have made him drop
off school and, anyway, made him see as a duty not to give the least penny to his prosecutors.
(See infra, S2. II.D.)

66
often they assume that P2P exchanges are illegal downloading,
but the tools to monitor it are not efficient, as the different
institutions trying to do so find totally different results.
Finally, the quantification of illegal downloading is so hard, that
economists and institutions rely on polls (see supra, Chap
1,II,D,1) or just assume its existence by default (as Liebowitz
2003, 2006a).

1. The lack of rigor in the definition of piracy

We described in introduction the illegal downloading as the
new practices appeared at the end of the 90s using the internet to
have free access to an unprecedented amount of music by
infringing the copyright. Thus, it should exclude smuggling, CD
burning, and include P2P, streaming and direct downloading.
Several studies only refer to piracy as P2P and almost none of
them take streaming into account. Anyway, few studies try
indeed to define concretely what they are talking about. This lack
of precision is all the more problematic as authors suggest that
their studies concern online piracy when, in fact, they deal with
CD smuggling and physical copying (IFPI 2000 ; Hui and Png
2003; IPI 2007). This has nothing to do with piracy.
For example, according to the IFPI report of 2000, “domestic
piracy” was the most prevalent in China (it was worth 620
millions $), Russia (200 Mn$), Brazil (180 Mn$) and Italy (115
Mn$). On the contrary, the countries with the least piracy were
US, Japan, UK, France and Germany ... In other words, domestic
piracy would have been very common in countries where Internet
hardly existed, and rare in the countries with the best
broadband/Internet penetration … It's absurd. However, if you
replace “domestic piracy” by “CD smuggling”, it's much clearer.
Organized crime is very powerful in China, Russia, Brazil and
Italy, which means a lot of smuggling. Then, we can assert
without doubt that the IFPI was talking more about CD
smuggling than about online piracy. Besides spreading false

67
messages, this kind of imprecision, illegitimizes any paper using
it.
More widely, the exclusion of one of the aspects of illegal
downloading can be a serious flaw.

2. The fluctuating evaluations

Several methodologies have been employed to evaluate the P2P
use (Liebowitz 2006a). Some institutions (Nielsen, Comscore,
Big Champagne) tried to monitor the number of users of a
services. Big Champagne found 4 million simultaneous users in
January 2003 and Comscore found 40 millions of users on this
same month. NPD Group and IDATE tried to estimate the
number of files shared by P2P. IDATE found that 12 billion audio
files would have been exchanged in 2003 (Bourreau and
Gensollen 2006 p.13)
As Liebowitz illustrated in the figure 2 of his paper of 2006, they
all found very different results:

Illustration 4: Quantifications of online piracy (August 2002-February2005)

Source: Liebowitz 2006

It's even not possible spot a trend from this figure. Moreover, the
numbers themselves can't be significant. However, several
studies use them to calculate a substitution rate or use it as a
starting point, generalizing their conclusions to a whole area.
This casts a serious doubt on their conclusions.
I take this opportunity to further criticize this notion of a
“substitution rate”. It asserts that all consumers follow this same

68
rule, that everyone substitutes as many purchases for illegal
downloads as everyone else, even if all the empirical studies find
a lot of differences between pirates behaviors. (supra,
Cha1.II.D.3.) In addition to this shortcoming, it agglomerates
very complex variables and contributes to the blurring of the
lines. Thus, I think that this harmful concept should be avoided.

3. Questioning the evidences brought by studying the

impact of repression
As mentioned earlier (supra, C1.I.E), several studies
(Bhattacharjee et al. 2006a; Adormo and Liang 2010; and
Danaher et al. 2012a) assume that, if sales improve when piracy
is repressed, then piracy made the sales fall in the first place. It
presumes that people act in a rational way, weighing the pros and
cons, and that repression made the “costs” of the action heavier.
The presumption of the rationality of the actors could be a flaw.
People, even non-pirates or pirates using download to sample,
could just feel guilty and buy more without being afraid of
punishment. I think that this effect was very important in the
French HADOPI case, since the sanctions were virtually non-
existent.
We should notice that these studies do not analyze the long term
effect of such repression policies, except Adorno and Liand
study (2010), which found that the deterrent effect was
decreasing quickly and disappeared after 6 months. The negative
effect on public opinion might have a more durable negative
effect on sales than the fear of punishment. To antagonize the
consumer could diminish their non-monetary motivation to buy
(support the artist, affinity for the law). In support of this idea,
the lawsuits in the US didn't just stop in 2003, but kept on until
2008. Strangely, no one tried to assess the impact of theses
procedures on the sales of the years 2005, 2006, 2007 and 2008.
The study of Bhattacharjee et al. (2006a) has a lot of
shortcomings and is not as credible as we might think. First of

69
all, 2003 was also the year of the apparition with huge publicity
of iTunes., which was responsible for 200 million sales in 2004
(OECD 2005):
“2004 has marked a turning point when a range of
legitimate online music services became available in most
OECD markets. Apple’s iTunes is said to have changed the
online music landscape by offering an easy-to-use online
store with a broad song catalogue, a consistent, uniform,
and cheap pay-per-download service. By the end of 2004,
there were 230 sites offering over 1m tracks online in the
US and Europe.” (OECD 2005 p.8)
Besides, the fall of pirate activity monitored is likely to be due to
the migration toward other kinds of piracy, such as direct
downloading or streaming, or stealthier networks. As we saw, the
tools used to monitor P2P flux are imprecise.
Thus we have demonstrated that profits are not correctly
estimated by the scholars. But let's assume music sales as used by
the economists are a good indicator of the profits of the music
industry, and that there is a correlation between their fall and the
illegal downloading. Then, the causal connection to this
correlation should still be proved.

II. The neglect of numerous important variables in the

establishment of causality
« Thus, the analyzes using those [macroeconomic] data
merely indirectly explain the statistical relationships on
which micro-assumptions and conclusions are based.. »
(Andersen and Frenz 2010 p.725-726)
Oberholzer-Gee and Strumpf (2007), report that, according to
the American Consumer Expenditure Survey of 2004, the
musical expenses of households without a computer fell by 42%
between 1999 and 2004 … this suggests that the doctrine omitted
something.
To “change” the correlation into a causality, it has to be isolated
from all the variables which could represent a bias. However,
much bias can be neutralized incorrectly: the variation of income,

70
interest for music or technological changes. Some important
variables are not even taken into account at all, such as the
behavior of the music industry. Some variables with an uncertain
effect, such as the artist's dependence on the market or the
modification of distribution methods, should have been studied
too.

A. Questioning the use of average incomes to control the

bias of revenue variations
« Personal income is nearly always a demand factor worth
discussing, especially in the case of goods that fall outside
the realm of necessity. » (El gamal 2012 p.47)
In average, people with more money are likely to buy more
music. To control this bias, economists use average income per
individual. However, the impact of the variation of the
household's income on music consumption tends to vary
according to the circumstances.

1. The variable link between income and music

consumption
Music consumption is not a linear function of the revenue35.
Firstly, the income decrease has a wider effect on music
consumption than an income increase. Indeed, If their income
decreases, the consumer will first cut their most dispensable
expenses, such as music. Indeed, if they want music, even
without piracy, they can use legal free streaming, radio or just
listen to old albums again.
This can happen just by anticipation: if the consumer fears for a
loss of income, he's likely to save money for the hard days
coming. Thus, anticipations are probably as important as, if not
more than real income.
I will illustrate the magnifying effect of income decrease on
music consumption by this little chart:

35 There is no equation “ f(revenue) = X Albums bought” nor “f(variation of revenue) = X albums

bought”

71
 120

100

80 Replaceable
superfluous
60 Irreplaceable
superfluous
40 Necessary
expenses
20

0
T1 T2

In this example, a drop in income of 20% of income would lead

to an 80% decrease in the expenses of the “replaceable
superfluous” (ex: listen to music on the radio instead of buying
CDs). Among “irreplaceable superfluous”, there is, for instance,
events, such as concerts, dates, parties … The impact of the
economic crisis of 1929 on music sales supports this claim: they
fell from 74,8 million in 1929 to 5,5 million in 1932 (Liebowitz
2003 p.14), when the average income was not divided by 13,6.

2. The impact of inequalities on sales

“We expect consumers to buy more music as their income
goes up, particularly because music is a form of
entertainment consumption and necessities are already
purchased at lower levels of income. However, a time-
constraint might mitigate the effect of increasing income.
There are only so many hours in a day that can be
allocated for music listening, and higher income does not
necessarily suggest more free time.” (Boorstin 2004)
The average income erases not only the variations between
time periods, but between people too ; while it is credible to
assume that inequality diminishes sales. The consumer with the
best ratio of “sales/income” is probably a middle-class consumer.
Indeed, a poorer consumer does not have enough money but to
much time, whereas the rich doesn't have enough time and
interest and too much money.

72
To illustrate: Lets imagine a group of six people. During one
year, the first earns 100 000$/year and the five other earn 20
000$/year. The next year, the first earns 210 000$/year and the
others 10 000$/year. The first won't buy any more albums, since
he already has all the music he wants. However, the 5 others will
stop buying music and keep their money for theirs essential
expenses. Thus, this global augmentation of 60 000$/year36 of the
group's income will result in a drastic diminution of its music
purchases. The growth of inequalities has a negative effect on
music sales.
Thus, if inequality is increasing, and it was the case worldwide
according to the OECD 2008), this could cause a drop in music
sales.

B. The irreducible problem of interest in music

On average, people who like pirating music are those who buy
the most. To control this bias, most papers use the broadband
access or market penetration, because it would be linked to
piracy and not to interest in music. This reasoning is terribly
flawed, as it attributes all the effects of the digital revolution to
piracy ; and the interest for music may not even be a bias, being
induced by the wide access to contents allowed by illegal
downloading.

1. Digital revolution = piracy; the terrible corollary of the

use of broadband as proxy for piracy
« Broadband penetration may partly capture the
substitution with new forms of entertainment such as online
activities, online games as well as audio-streaming and
digital music distribution. » (Peitz and Waelbroeck 2003)
« Countries with more rapid increases in Internet
penetration rates may experience faster drops in physical
music sales only because individuals substitute physical
music purchases for legal downloads. » (Zentner 2010
p.12)

36 (210+5 x 10 000) - (100 000+5 x 20 000)

73
 ”Internet penetration proxies for new forms of
entertainment – think YouTube and World of Warcraft –
that compete directly with music and traditional film
consumption, yielding a negative bias in displacement
studies” (Oberholzer-Gee and Strumpf 2009 p.19)
Even if several scholars recognize the fact that broadband is not
linked only to piracy, many use this variable as if it is. However,
broadband gives access to legal streaming, online video games
(let's remember Counter strike or Ultima Online), websites and
all the information they contain, legal downloading …
The access to legal streaming might reduce the need to buy,
offering the same quality and diversity in music as those
proposed by the illegal dowloading. Legal downloading, as we
will see later, can have a negative effect on sales by allowing
unbundling. Forums and websites support the development of
new time-consuming interests and passions and allow a better
knowledge of the coming events.
Music being supplanted by the videogames is an obvious effect.
Moreover, broadband fosters these uses much more than P2P.
The speed of your connection plays a role, but is not decisive for
downloading music: files are small and you can leave your
computer on during the night. However, to play online
videogames or to stream, it's important to have a good
connection.
Finally, the choice of the broadband connection as a proxy for
piracy includes the new practices that appeared in the digital
revolution. Controlling the interest in music with broadband
access is like trying to pull weeds out of a garden with a digger:
the bias created is much wider than the bias it tries to control.
Let's note that this argument goes far beyond the sole issue
dealing with the control of the interest in music. Indeed, several
papers use the broadband penetration as a proxy to directly
estimate the intensity of illegal downloading (Zentner 2005 and
2010, Boorstin 2004, SNEP …). This alone may invalidate them
totally. We will develop these arguments further below.

74
In brief, this tool is an inefficient proxy for piracy, widely
overestimating its effects. Moreover, this overestimation would
be even more harmful if an interest in music was favored by
illegal downloading.

2. Piracy and interest in music: the emulation effect

Economists perceive an interest in music as a given, a reality
detached from all interesting reality. However, nothing has been
proved in this way. On the contrary, the common sense is that
you will be more attracted by an activity that is easily accessible.
If you live beside a pool, you are more likely to go swimming
than if your home is 10 miles away from a pool. Thus, what is
better than an almost unlimited, free, accessible “pool” of music
for people to be interested in? This emulation effect may have
positive effects on the production of music too, by allowing the
artists to access a wide source of inspiration.
Besides, a fan will see more added value to a customized disc
and box of their purchased CD than in a blank CD of pirated
music. He will be more motivated to support his favorite artists
by buying concert tickets and goodies too.
Thus, interest in music is an unsolvable problem, which control
will have probably (if we used a 1 to 5 scale auto-evaluation) or
inevitably (if we used broadband as a proxy) have widely
overestimated in the negative effect of piracy.

C. The poor control of technological changes

Illegal downloading didn't appear alone. It came as part of a
huge technological change we call the digital revolution. As we
just saw, confusing online piracy and the whole revolution is
likely to lead to an overestimation of his negative impact. We
will further develop this idea.
Most specifically, the effect of the legal downloading, streaming,
the development of other entertainment goods of the
obsolescence of the CD are not taken into account, even if they

75
are all serious bias.

1. The negative effect of legal downloading and

streaming
« It stands to reason that a rise in popularity of a lower
priced product, and steep decline in a more expensive one,
in this case, albums, could net overall losses. The rise in
the Internet as it pertains to illegal piracy and legal digital
distribution undeniably played a major role in the massive
shift in consumer preference by providing them the means
to easily access individual songs without even stepping out
of their front door » (El gamal 2012 p.46)
« People praised Napster because it enabled them to
obtain hit songs without having to buy an entire album. At
the time that Napster was released, there was a general
market perception that the artistic and creative quality of
new albums had decreased. Many people felt that albums
contained only one or two good songs, along with many
low-quality ‘‘filler’’ songs.[...] With the files obtained
through Napster37 , people frequently made their own
compilation albums on [CDs]” Choi and Perez (2007 p.4-
5)
One of the problems of CD singles was their prohibitive cost
of just one song. At the end of the 90s, single sales were almost
non-existent. However, the single made a huge come back with
the arrival of digital singles, sold at a cost per song similar to the
one of the album. Then, the consumer could buy only the songs
he liked, and not the whole bundle. For instance, if you liked 3
songs of an album, you could just buy them for, let's say 3€, and
not the whole 12€ album. This unbundling ability may have
played a role in the fall of the global value of music sales
posterior to 2004 (when the apple store became a real deal). So
legal downloading, enabling cheap single purchases, could have
had a negative effect on the overall value of sales.
For its part, streaming has similar characteristics to
downloading stricto sensu: the free and easy access to an almost
unlimited amount of music. The only difference is that it requires
37 Instead of “Napster” you may have read the name of a legal downloading plateforme if the music
industry didn't block its development, as you will see in the next part (D).

76
an Internet connection at the moment of listening, which limits
the portability of the music. Only two recent studies (JRC 2013
and Dang Nguyen et al. 2012) assess the impact of streaming,
without precision about its legality, on music sales (only on
digital music sales for the study by the JRC).
The study of Dang Nguyen, Dejean and Moreau (2012) used a
survey on two thousand French people in March 2011 and
concludes that surfing on a free streaming website has no
significant effect on CD purchase, but has a positive effect on the
sales of concert tickets of national or international stars. It would
have been interesting to know what effect the calculation used
would attribute to illegal downloading. The JRC (2013) estimates
that streaming, as illegal downloading, has a small but
statistically significant positive effect on digital music sales.
These findings would refute the hypothesis we studied here.
However, the second one would support the idea that streaming is
similar to illegal downloading …

2. The flawed control of concurrent goods impact

« As an entertainment good, motion pictures are competing
with other entertainment products. Consumers will
consume entertainment goods during their leisure time –
which is limited, and most consumers will also have a cap
on the spending they can have on these activities. Since
consumers have no chance to consume everything, we
experience competition between different entertainment
products.. » (Roselund 2012 p.26)
The fall of music sales is contemporary with the considerable
development of the role of films, computers and software in the
daily life and the budget of the consumers. The entertainment
goods which could be substituted for music are usually the films
and videogames.
Macroeconomic data observes the variation of the global sales of
these entertainment goods and whether there is a correlation or
not. Only Liebowitz (2003) find a positive correlation in the 90s.
Many others did not find any correlation (SNEP 2013 p.28 ;

77
Bourreau and Labarthe-Piol 2005 ; TNO 2009). However, these
papers did not take in account any other variable (not even
income evolution) which might have had an effect on the
consumption of these goods. Thus these findings aren't reliable.
Microeconomic data is much more coherent and permits a
much more complete observation. As we saw earlier (supra
C1.II.D.2.), it emerged that pirates buy more videogames and
films that non-pirates.
If, as we do, you consider the idea that people would have an
infinite time and money allocated to entertainment as absurd and
that videos, music and videogames are concurrents, then you
would have to admit that the studies which don't take their effect
in account are likely to overestimate the negative effect of illegal
downloading.
Zentner (2010 p.1) pretends to isolate the effects of Internet by
using broadband instead of dial-up as a proxy for piracy,
implying that piracy would be much more impacted by a fast
Internet connection than the other Internet activities. We observe
it would also dodge the difficulties linked to the quantification of
piracy activity. However, the assertion on which it is grounded
has no justification on his own and, as we just told, is more likely
to be absolutely wrong: most Internet activities require high-
speed connections because they need instant responses (surfing
since some web pages can be contect heavy, streaming, online
games), when you can just leave your computer run overnight to
download big files. Moreover, music files are rarely large and
can be downloaded relatively fast, even with a dial-up
connection.

3. The life cycle of the supports

“[If it is not clear if the MP3 will be or not the main format
(others, such as AAC and SACD are viable competitors),
there is no doubt that the CD is today at the end of his life
and will be replaced.]” (Bourreau and Gensollen 2006
p.10)

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 When we are looking at the sales curve of all the music
formats since the 70s, we see a clear pattern: they grow, know a
“golden age” and decline. In a few word, they have a life cycle.
In France and the US, the vinyl technology knew its best time in
France at the beginning of the 80s (1977 in the US), and the
cassette at the beginning of the 90s. (Bourreau and Labarthe-Piol
2005; Liebowitz 2003 p.11)What if CDs experienced their
decline at the turn of the millennium?
This idea seems peculiar at first sight. Immediately, we can ask
ourselves if this decline was not due to the rise of a new format.
However, in France, cassettes never really found their public. It
didn't disturb the life cycle of the vinyl, whose decline caused a
sharp fall of global albums sales between 1979 and 1988.
(Bourreau and Labarthe-Piol 2005) Thus the decline of a format
would not automatically be linked to the rise of the next one.
The Liebowitz's (2003) figures show that at each change of main
format, the global trend has been similar: a little fall and then an
important rise. Has to be underlined that, “in relative terms the
decline between 1999 and 2004 was barely sharper than that
observed between 1978 and 1982.” (TNO 2009 p.94) That
corresponds to the beginning of the cassette and the end of the
vinyl.
For what reason would formats have a “life”? It is probably
caused by the perception of their innovative or obsolete nature,
mostly determined by the technological innovation in general.
However, nothing new appeared in music between the CD (1978)
and 1999. During this period, film went from VHS to DVD,
videogames from Pong to Caesar 3 and Age Of Empire 2,
computers went from an equipment that took up a room to a box
next to your desk ! The music industry did not innovate
(deliberately as we shall see later) and probably paid the price for
it.

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D. The actions of the music industry as an uncontrolled bias
“So in this conflict, on one side there is a segment of music
consumers that illegally download pirated music files.
Though it is not clear that this activity results in reduced
sales, some portion of these "pirates" may be willing to pay
for legal downloads at a reasonable price.
On the other side there are the record labels, who have
settled multimillion dollar lawsuits alleging price fixing,
who cling to high margins despite the obvious savings in
electronic distribution, and who in turn sue their own
customers who are found to have downloaded pirated
music files.” (Easley 2005 p.166)
The music industry is the first protagonist that should have
been investigated. It is the coherent aggregate which has the most
potential for increasing the volume of sales (The States have less
possibilities and consumers are not a coherent aggregate).
As we underlined, the music market has not developed any new
format over the two decades in question, in the context of
constant innovation everywhere else. However, an enterprise
which is not progressing tends to die. On a more moral
perspective, we can wonder whether the music industry has the
right to complain when they acted to the detriment of consumers.
Several arguments support this hypothesis.

1. The rejection of legal downloading

“Lawsuits against new technologies provide opportunities
for little minds to usurp the gains of genuine inventors and
under the smug protest of righteousness, work a hold-up
game in the most approved fashion.” Henry Ford, 1911,
quoted by Choi and Perez (2007 P.1)
“By waiting (in vain) for effective Technological Preventive
Measures, music companies wasted several critical years
before innovating in the marketplace to provide authorized
downloads.Filesharing services offering unauthorized
copies moved to fill this gap and became the default source
for many consumers.” (Adams and Browns 2009)
“To similar effect, a record industry official explained that
there “was clearly a strong demand that was proven by
Napster” and that “absent Napster coming onto the scene .

80
 . . the music industry would not have moved forward” but
“would be another five to ten years behind where it is
today.” (Carrier 2012 p.907)
“[The first example of these missed opportunities is
without doubt their reticence toward the concept of
numeric distribution itself, as assert the declaration of the
RIAA president during the Napster trial, for who the
numeric music has no future.]”(Waelbroeck 2010 p.4)

Ebay was created in 1995 and the companies that eventually

became Paypal were created in 1998. Legal downloading
appeared with MP3.com in 1996 (Litman 2006 p.157) and
eMusic in 199838. Thus, the technology to create a legal
downloading platforms existed at the time. Why did the majors
not create one before iTunes, in the late 90s? The IFPI (2004)
justifies itself not doing so regarding the difficulties in digitizing
contents, negotiating with right-holders, conceiving a secure
payment system, creating a liable virus-free “system of contents
and exploitation” and a user-friendly DRM. Piracy and slow
broadband penetration at the time would have slowed this
development too.
First of all, these are two absolutly non-sensical excuses: I
cannot understand why it would be difficult to digitize contents?
CDs were already digital. Then, what is a “system of contents
and exploitation”? A website or a music player? In the second
case, Winplay3 or Winamp were already here, why bother
creating one? If it was a website … well, I won't elaborate. Thus,
it had to be … “virus free”. Then, they had to accomplish the
incredible task of not putting a virus in it. Amazing. I would
rather stay neutral and not be sarcastic, but I honestly don't know
what else could be done in the face of such absolute nonsense.
But let's get back to more serious matters.
Since the slow broadband penetration didn't significantly impede
illegal downloading as early as 1999, we don't see why it would
38 Without the backup of the majors, they had not a chance, being unable to even find the right-
holders of each song no negotiate and they didn't penetrate the market.

81
have slow down legal downloading. Then, as mentioned earlier,
the secure payment technology was already present.
The story of the MP3 is really interesting to understand the
“efforts” made by the music industry in development a legal
downloading supply. MP3s had been developed in 1995 and had
allowed for the obtention of music files of equal quality to those
on CD, however with a much smaller weight. Even if it helped in
the conception of the legal supply, the majors just fought it,
arguing that it favored piracy (Litman 2006 p.155). They even
tried to obtain a restraining order against the first mass produced
MP3 player in 1998. (Oberholzer-Gee and Strumpf 2009 p.32)
With regard to the piracy itself, it may have been more a motor
than a barrier. One record industry official declares to Carrier
(2012 p.907): “absent Napster coming onto the scene . . . the
music industry would not have moved forward” but “would be
another five to ten years behind where it is today.” Choi and
Perez (2007) detail several innovations due to illegal
downloading, among which is the quality of the files legally
available, which couldn't be too far below the one of the pirated
files.
The only problem might have been the negotiation of copyright.
This difficulty has been underlined by the journalist Hammon
(2002) and the professor Lauren (2003) as well. The latter
describes the complexity of copyright, detained by a lot of people
(writer, publishers, labels, artists) whose interests diverge widely
and who compete fiercely.
“In the list of items that can create market failures, the
music industry boasts many: high transaction costs caused
by multiple parties, some of which are hostile to each
other; numerous contingencies created by complex legal
regulation; high costs of monitoring; and costly
punishments. Additionally, the uncertain and complex
rights increase the transaction costs.” (Lauren 2003 p.29)
However, when the iTunes store appeared in 2003, this problem
suddenly vanished and a rich legal option appeared in a few

82
months. Moreover, why had the first websites attempting to
create a legal downloading supply have been sued instead of
being helped?
MP3.com, launched in 1996, proposed legally some songs for
free download and others for paid downloads. They sold albums
at 8$ each and transfered half to the artist. They wanted to install
a cloud system allowing the client to listen to the albums they
bought anywhere in the world. However, by ignorance, they paid
the corresponding rights to the publishers and not to the labels.
Majors sued them and the judge decided it was a commercial use.
Thus the company had to conclude a deal for several million
dollars and was sold to Vivendi. After that, right-holders who
didn't take part in the first lawsuit attacked the site for easy cash.
The site was sold again and taken down. (Litman 2006 p.158,
197-198) Napster is another representative case. Initially illegal,
they negotiated with the majors to become legal and remunerate
the artists. With their humongous base users (40 million), it
would have been the immediate beginning of legal downloading.
Labels just didn't care and sued them. (Carrier 2012 p.14)
“Contributing to these difficulties are the terms imposed on
companies that seek to partner with the labels in offering
new services. The labels, even according to one of their
leading officers, “cripple the companies by demanding
such advances and guarantees that they go belly up.” As a
result, the labels “killed virtually every company.””
(Carrier 2012, p.947)
The article of Carrier (2012) is full of anecdotes illustrating the
opposition of the labels towards the digital revolution as a whole
and especially legal downloading. I can only encourage you to
read it, so you will feel like you opened some kind of Pandora
box, as you discover how copyright is really applied the
copyright, who applies it and why.
Finally, the most likely answer is that record companies just
tried to keep legal downloading away, by relying on the weight of
the copyright negotiation and lawsuits.

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 2. Consequences of the opposition to innovation
“For a considerable amount of time, the industry remained
unable to stem the tide of unlicensed music file sharing
with their conservative strategy of abstaining from
innovation, promoting legal measures against supposed
offenses and digital rights management. This strategy
resulted in the current backlash, providing space for a new
entrant establishing a major brand in the online music
business: Apple's iTunes.” (Van Eijk, Poort and Rutten
2010 p.51-52)
« However, while these legal changes have not stopped the
widespread unauthorized sharing of copyright works, they
have impeded computer security research, retarded
innovation in technology and commerce, and blocked
groups such as visually impaired users from accessing
locked‐up material. » (Adams and Brown 2009)
“Although the labels focused on the infringement made
possible on p2p networks, the vast user base on these
networks presented golden opportunities. As discussed
above, the centralized Napster service offered a robust
prospect for the labels to monetize users’ activity.”
(Carrier 2012 p.65)
“If they had adopted new models earlier, rather than
“fiddling,” “the curve might have flattened out earlier and
they might be on the uptick.””(Carrier 2012 p.936)
The opposition of music industry to legal downloading likely
had an important part in the fall of music sales. First, they made
the consumers distrust legal downloading, as their first offer
(MusicNet and Pressplay) was so full of restriction that it was
almost scam-like: they sold as downloads a service that was
actually only limited (X song/month) streaming (Hammon 2001).
Indeed, even if you had the file on your computer, it was
deactivated after one month and couldn't be transferred to another
device. Worse, some files were blocked after a certain amount of
plays. This kind of commercial behavior, consisting of selling
something with a lot of hidden flaws can only make the
consumer lose durably all kind of trust toward the supplier.
Several studies conclude that the absence of a credible legal
option created directly a significant deadweight loss for the

84
music industry. Even the IFPI (2004) admits that a huge amount
of P2P sharers (36%, in Europe) would have wanted to pay for
downloading. This hypothesis is that the NBC decision to take
away its video from iTunes (suppressing their main online legal
video supply) caused a rise of 11,5% in illegal downloading of
these contents (twice as many downloads as through iTunes).”
(Dejean 2010 p.17)
The analysis of the penetration of MP3 players can give us
some insights about this question. Interestingly, the penetration
of MP3 players began long before the distribution of legal
downloading. What if the penetration of players was linked to the
music consumption? In this way, Bourreau and Gensollen (2006
p.12) observe a correlation of 0,90 between the CD sales of
albums and the penetration of CD players in the US between
1983 and 2001. By reading the figure, we can estimate that 20%
of penetration correspond to 250 million CD sold. According to
their data, the penetration of MP3 players in US would have been
20% in 2000 and 30% in 2001. If the ratio of music sales to
music player is the same for MP3 than for CDs, then the
deadweight loss of music industry would be 250 million albums
in 2000 and 375 million in 2001.
Then we have to ask: what if the music industry created a
complete and DRM-free proposition when it was possible, in
around 1998, what proportions would reached legal downloading
have reached? Regarding its actual success, even after supporting
the weight of the distrust caused by DRMs, lawsuits and
freedom-killing legislation and appearing as a copy of illegal
downloading, we can assume its success would have been on an
even higher level than it is today and its growth would have
happened much faster.
Additionally, “the shutdown of Napster 39 forced music (and now
video) content underground onto untracked decentralized
services.” By doing so, the majors jeopardized all possibilities to
39 Indeed, the service of Napster was centralized, so the transfers could be monitored easily and
rights-holders could have been remunerated in function of their popularity.

85
monetize P2P, the “development of a source of revenue that
might have been used to compensate artists.” Adams and Brown
2009 p.4; the same idea is defended by Carrier 2012 p.65) It was
even more harmful since “polling indicated that a majority of
Napster users would be willing to pay a fee for music
downloads.” (Moseley 2010 p.314)
We are transgressing a little on the borders of our subject, but
the impact of the legislation created to “protect” intellectual
property in innovation in general helps to understand the total
dogmatism of those who lobbied for their enforcement. The
Digital Millennium Copyright Act was one of these.
This Act made “it a crime to circumvent the technological
measures that control access to copyrighted works” and “the
manufacture and distribution of any technology or tool designed
to circumvent encryption technology” (Berkman Center 2005).
The damages which could be claimed for these acts were
tremendous: several millions, sometimes billions, of dollars. It
settled a highly favorable ground for opportunistic or brute-force-
pressure-designed lawsuits. It also irradiated besides its actual
extent, as the latter was not precisely defined and has probably
researchers to work on encryption or similar matters, often
falling under the DMCA. It also prevented the investigation of
dangerous DRM system, some of them creating security breaches
or making the normal use of the content impossible.
For example, “in 2009 Prof. Harderman was again forced to
seek a DMCA exemption in order to continue his computer
security research relating to DRM systems, including the
protection mechanisms used on the Electronic Arts videogames,
Spore, which has been the subject of class action lawsuits
alleging security vulnerabilities”. Even if its exemption was
granted in 2010 (!), it was not renewed in 2012. (EFF 2014) You
can find numerous of other similar anecdotes in the report of the
Electronic Frontier Foundation published in 2014, Unintended
consequences: sixteen years under the DMCA .

86
More widely, it had a “chilling effect on vulnerability research.”
(R.Clarke, White House Cyber Security Chief, 2002, quoted by
EFF 2014). I also underline that encryption technologies are a
key geopolitical strategical asset, as they are what makes
communications secret. It is an important stake because it
involves the protection of banking transactions, private
conversations of officials, military communications and so on…
Many communications whose hacking was facilitated by a
slower rate of encryption research, notably favoring terrorism
(the actors of which being probably very interested in military
and official conversations) and diminishing the competitiveness
of the US in these matters. However, the extent of this effect is
unsure: I don't know the part private encryption research plays in
face of the military or corporate research. What is absolutely
sure, is that it also makes companies more powerful against
people, since the possible flaws in their software couldn't be
investigated (or hardly could), even if, if not only stopped the
content from working, but also created security breach making
the intrusion of hackers easier.
“In practice, the anti-circumvention provisions [of the
DMCA] have been used to stifle a wide array of legitimate
activities. As a result, the DMCA has become a serious
threat to several important public policy priorities.” (EFF
2014)
The DMCA was widely used to limit the interoperability of
software and files, not because people had a direct interest in it
(they did not), but because they could get money doing so. (EFF
2010) For example, Universal studios tried to circumvent the
diffusion of DeCSS, a software allowing DVDs to be read on
Linux by cracking their cryptography.40 (Bergman Center 2005
p.25)
Carrier (2012) questioned 31 high ranked protagonists of the
digital revolution: Venture capitalists, music industry officials,
CEOs … It becomes clear from these interviews that the majors
40 Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2nd Cir. 2001) ; Voir
http://en.wikipedia.org/wiki/Universal_City_Studios,_Inc._v._Reimerdes

87
used the lawsuits to put pressure on the innovative companies
regardless of whether their claims were grounded or not. The
legal penalties were so huge that no investor would put any
money in it until the suits were settled. Even new partnerships
were scarcer, since no one trusted the longevity of these
companies. Inevitably the firm was crushed by the latter effect
and the legal fees. Even Veoh, which raised tens of thousands of
dollars, went bankrupt in 2010 because of such tactics.41 We can
easily imagine that it could have been a part of the companies'
business models: by getting in a position to have sufficiently
credible claims to scare companies, they could threaten them
with lawsuits and convince them to give them money to settle the
litigation.

3. The consequences of antagonizing of the consumer

“According to some industry experts, there was nothing
worse that the recording industry could have done than to
make consumers feel like criminals.” (Choi and Perez
2007)
“From my view, suing your customers is not good
business. » Sénateur Norm Coleman du Minnesota, 2005,
quoted by Choi and Perez (2007)
“[Even if these trials concerned only a small part of the
pirates, they had a very negative impact on public opinion,
which regarded these sanctions as arbitrary and
disproportionate in comparison with the incriminated
facts.]” (Dejean, Suire and Pénard 2010)
The music industry brutally fought the people downloading
music, in particular by launching a campaign of individual
lawsuits from 2003 to 2008, with a total of 35 000 people sued.
(Oberholze-gee and Strumpf 2009 p.10) The RIAA stopped it
after finding “that it proved costly, ineffective, and harmful to its
clients’ public images.” (Moseley 2010 p.1)
An important record industry official even declared “There is no
doubt |..] We fight our own war on terrorism”. (Harmon 2002)

41 http://www.journaldunet.com/ebusiness/le-net/le-portail-video-americain-veoh-fait-faillite-
0210.shtml

88
Carrier (2012 p.68) also made a similar parallel: “Several
participants criticized it, with one likening it to the industry’s
“war on drugs,” in which they “just attack everything.” The
industry not only “attacked” the“lawless” but also conducted a
“war on all new technology.” This “war on piracy” didn't just
stop here. The lobbying of the IFPI and its national ramifications
(SNEP, RIAA …) caused the apparition of oppressive laws, such
as the HADOPI or the SOPA.
We saw numerous examples of massively known testimonies of
peoples targeted by the lawsuits. Even the judges who had to
settle the only two cases that went to court disapproved of the
sanctions. The applicable legislation appeared so unfair that
“both Chief Judge Davis and Judge Gertner inserted pleas to
Congress for statutory damage reform into opinions addressing
the subject. In his order for a new trial, Chief Judge Davis
“implore[d] Congress to amend the Copyright Act to address
liability and damages in peer-to-peer network cases.” He
emphasized that Thomas’s acts of infringement were for personal
reasons and were not comparable to the activities of a large-
scale commercial infringer.”(Moseley 2010 p.331)
“Acknowledging the harm caused by infringement, she
nevertheless found “something wrong with a law that
routinely threatens teenagers and students with
astronomical penalties for an activity whose implications
they may not have fully understood.”” Juge Gertner42,
quoted by Moseley 2010
What appears through the media coverage of these lawsuits is the
pure and simple will to traumatize the individual consumer by an
over weighted sanction and to make them pay as much as
possible.43
“To borrow Chief Judge Michael J. Davis' characterization
of a smaller statutory damages award in an analogous file-

42 Memorandum of Law & Order at 41, Capitol Records, Inc. v. Thomas-Rasset, No.06-1497 (D.
Minn. Sept. 24, 2008)
43 You can find several examples on this website:https://www.eff.org/wp/riaa-v-people-five-years-
later#footnote23_19ue64g
The Tanenbaum case deserve a special mention:
http://en.wikipedia.org/wiki/Sony_BMG_v._Tenenbaum

89
 sharing case, the award here is simply “unprecedented and
oppressive.”” Juge Gertner (2010)
The will to hurt and crush is crystal clear in the case of Mme
Thomas-Rasset: the RIAA contested two times judgments
condemning her to pay 54 000$ … for 24 songs.44
Such terrible public image can't be without consequences. Just as
the pirates represent an large part of the population which,
moreover, in average buy more music than non-pirates (supra
C1.II.D.). However, these radical measures not only alienated the
pirates, but also the non-pirates. As The Economist wrote, it
seems likely that “number of music lovers think that the industry
is just being greedy.”45
Besides the sole lawsuits, acted against all the consumers through
the installation of DRM of their CD and the legally downloaded
files. Thus, they diminished the value of their good in
comparison with the DRM free pirated files (Pasche 2009 p.29),
the latter having more functionality. The worst part is that, by
nature, the DRM are inefficient in the face of online piracy. As
soon as a song is well known, there will be someone among the
listeners who will crack the DRM and release a DRM free
version on the Internet. They just made their offer less credible
and showed to their consumers that they would sacrifice their
interests even for the slightest chance to combat piracy.
“However, the drawbacks of DRM have proved so many
and so negative that operators are increasingly choosing to
ignore this route altogether. For one thing, DRM-protected
CDs often did not work on computers, restricting
consumers in their freedom to play their music where they
want and when they want.” (TNO 2009 p.20)
The impact of this opposition appears even more likely when
we know that the “intrinsic motivations” have a huge importance
in the music purchase. The intrinsic motivations are the ones that
are not linked to a direct reward or the risk of being punished.
44 To be accurate, she may have hosted 1700 files, but only 24 were proved being protected by
copyright. (Moseley 2010).
45 Not-so-Jolly Rogers, The economist, 10 sept. 2003
http://www.economist.com/node/2050467/print?Story_ID=2050467

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For example, the affinity for legality is an intrinsic motivation,
whereas the fear of legal punishment or the will to have a better
product are extrinsic. Affinity for legality, the desire to help the
artist and the respect for the creators are intrinsic motivations
and, as we saw earlier (supra, C1.II.D.3), play a major role in
legal purchase.
Alone, the existence of legal downloading proves the importance
of intrinsic motivation in the purchase of music. Downloading
music through P2P is easy and, in France, barely repressed. Even
pirates purchase dematerialized music, even more than non-
pirates ! (Jupiter 2009)
Another point is brought to our attention by Regner and Barria
(2009) about the behavior of consumers. An album was proposed
at an optional price between 5 and 18$ with the recommended
price set at 8$. The average price determined by the buyers was
… 8,2$! Even more than the recommendation. These extra 3,2$
can't be explained by extrinsic motivations.
However, Frey and Jegen (2001) showed that the economic
incentives, such as legal sanctions or money reward, can “crowd
out” virtuous behavior. It has been even considered in 1970 that
rewarding blood giving with money had a negative effect on the
number of blood donations.46 Later, other studies confirmed that
intuition and many others have extended this thinking to other
fields.
One of the best-known examples is that of a day nursery wishing
that parents would stop picking up their children late. The
installation of a monetary sanction for the parents who picked up
their kids too late resulted in an increase in the number of the
latter. In fact, this penalty appeared as a fair compensation, so
parents thought “If I pay a little more, I have the right to pick up
my child later.” Thus, the extrinsic motivation “crowded out” the
intrinsic motivation (morals) for picking up children on time.
Within the context of this study, the punishments inflicted by the
46 Titmuss, R. M. (1970) The Gift Relationship. London : Allen and Unwin.

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music industry were likely to crowd out the (important) intrinsic
motivations of legal consumption. This crowding out effect could
eventually touch the non-pirate user, which would have been
extrinsically rewarded by the fact of not being sued.
Then, the next question is: how far did the music industry
alienated its own consumers?

E. Potential bias: the evolution of market dependency and

distribution process
I will develop two more variables whose study could be
interesting in order to assess the economic impact of illegal
downloading: the impact of the dependence of the artists toward
the market and of the modification of the distribution ways.

1. The variation of the market dependence of artists

As Becker showed in Outsiders (2012, first published in 1965),
the artists have the choice between doing something
“commercial” or “jazz” (which meant for them “real art”).
Cowen and Tabarrock (2000) argued that government subsidies
could have effects on the art market. Indeed, being less oppressed
by necessity, the artists might be less complaisant to the
consumer and do something less commercial. I find this idea very
attractive. We can widen this reasoning, and include the global
dependence of artists on the market. It would also include the
facility to get a part-time job that allows them to have a
respectable amount of music practice.
No studies assess this complex variable and no elements allows
us to have an idea about this effect. Therefore the potential
consequences of this mechanism remain blurry.

2. The modification of the physical distribution ways

We saw in the first chapter that the share of each type of physical
distribution (specialized or general superstores, independent …)
varied widely during these 15 last years. However, a general

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store such as Wallmart or Carrefour doesn't attract the same
people as specialized stores and doesn't offer the same services:
the titles proposed are not the same, in number and nature.
Channel of distribution Number Average number of references Market share
General superstores 6880 500 – 10 000 38,00%
Specialized superstores 301 30 000 – 40 000 36,00%
Independant record store 383 25 000 – 35 000 2,00%

Illustration 1: Physical music distribution in France in 2004

Source: Bourreau and Labarthe-Piol 2005 (p.28)

We can distinguish three comparable protagonists: the general

superstores, the specialized superstores and the record stores. The
firsts ones allow to consumers a simple and often unwanted
access to CDs. Thus, it can make people who have no interest in
music buy music. The albums on display will target the general
public and aim to trigger a compulsive purchase. (Bourreau et al.
2011) Thus, a diminution of their market share can induce a
reduction in the general public's exposure to music.
An independent music stores will be specialized in a particular
music genre. There will be more diversity and specialized sellers
who will be able to counsel the consumer. The target market is
music fans, the already knowledgeable and interested consumer.
A diminution of their market share may represent a decrease of
music exposure among music fans.
The specialized superstore is a compromise between those too. It
targets the general public and music fans. Its range of products
will probably be wider than that of the independent record store,
but there will be more musical genres, which limits the diversity
within genre.

Beyond the product range differences, the context is also

different each time. The ambiance is not the same in a general
superstore, a specialized store or in a small record store. For
example, if you are a music fan, you may not want to choose

93
your next CD besides moms doing groceries with their kids (like
you might in a general superstore).
It is then likely that the modification of physical distribution had
an effect of sales. However I don't have enough data to discuss if
it was a positive or negative impact and what would be its
weight.

F. If most of the variables are controlled, why cannot we

explain the differences between different variations?
The studies focus exclusively on the fall of sales posterior to
Napster. However, music sales varied before Napster too: if the
explications given by scholars for the post-Napster fall are true,
they should also be true for the variations ante-Napster too. It
could be a way of checking that no important variable was
omitted.
The fact that we know little about the causes of the variations of
music sales appears clearly when we compare different countries.
Why, between 2011 and 2012, did sales of Canada gained 5,8%,
when the US sales reduced by 0,5%? Why did France lose only
2,9% of sales when Germany lost 4,6%? (SNEP 2013) The
broadband penetration is similar in these countries; the GNP
grew more in Germany than in France … Similarly, the JRC
(2013) observed that illegal downloading had different effects
between the couples France/UK and Italy/Spain.
Scholars searched for answers that could seem credible, but
didn't try to substantiate their conclusions by comparing with
different times and locations.

94
 Source: SNEP (2013 p.18)

The OECD reports (2005 p.7-8) about the diminution of music

after 2000, “This downturn was not uniform in all OECD
countries. Whereas some OECD countries experienced large
declines, e.g. the US, France, the Netherlands, Japan and
Germany, other markets for recorded music like the United
Kingdom experienced steady or growing sales. Apart from online
piracy, there have been other changes in the market environment
for music over the past ten years such as the increased number of
entertainment sources which may explain changing music sales.”
On a larger scale, it seems difficult to explain the variations
between France and the US. The sales in the first were on the
same level between 1979 and 1999 while they doubled in the
second one. Then, sales were halved in France between 1979 and
1988. US sales experienced nothing like this.

95
 Source: Bourreau et Labarthe-Piol 2005

But let's assume that there was really a fall in profits which was
actually caused by illegal downloading. The fact that this injured
the music production remains unproved.

96
 III. The preposterous assumption of a negative
impact of a fall of sales on music production
« In conclusion, there is a good case for reconsidering, or
at least nuancing, the socially harmful characteristic of
file-sharing which has been put forward by the music
industry in an effort to justify its long lasting fight against
this new technology and its users. » (Pasche 2009 p.52-53)
The real harm caused by illegal downloading, through the
decrease of profitability of music, would be a decrease in the
quantity, quality, and diversity of the musical offer. But
remember that the variable used to perceive the profitability of
music was the sales of prerecorded music. It so happens that the
link between the sale of prerecorded music and the profitability
of being an artist is far from being obvious. On the contrary,
piracy could make artists gain visibility, which would favor their
main revenue source: concerts. Piracy would also contribute to
the enhancement of market efficiency by reducing information
asymmetry.

A. Revenues and musical production: a long story

“It is a long jump from the assertion that inventors deserve
the fruits of their efforts to the conclusion that current
patent and copyright protection are the best way of
providing such reward.” (Boldrin and Levine 2002)
“People who save on the cost of acquiring prerecorded
music by downloading files from the Internet (the pirates)
can spend more money on live concerts, while live concerts
more directly compete for the money of the explorers.”
(Bounie, Moreau and Walbroeck 2005 p. 20)
As Oberholzer-gee and Strumpf (2009 p.5) write, “even if a
weakened copyright regime turned out to reduce industry
profitability, it is not obvious whether a decline in profits would
undermine the incentives to create, market and distribute artistic
works.”47 In fact, the share that prerecorded music sales have in
the artists revenues incite us to think that it's not what motivates
them. And even if it really made them money, this objective
47 For further information on the matter, you can read the thesis of Pasche (2009 p.51 and s.).

97
doesn't seem to have a relevant role in the artistic creation.
Overall, the empirical data corroborate the weak impact of music
sales on music creation, since as the production grew sales fell.

1. The (small) share of CD sales in the artists revenues

“As pointed out by several academics commenting the
"crisis" of the music industry, the fall of the sales of CDs,
while an issue for the music industry, is not necessarily a
vital one for musical creation and live music.”(Brousseau
2008 p.7)
As we saw in the first chapter, the sales of prerecorded music
account only for a small share of musician's revenues. It is only
the fourth musical revenue amongst their total income, way
behind concerts, their first source of musical income. (Supra
Cha1.II.C.2.)
Thus, it is likely that the fall of CD sales doesn't have much
affect on the artists, but impacts the labels. On the contrary,
piracy is probably profitable to the artist, as it may enhance their
concert audience.
Illegal downloading could have two distinct positive effects on
concerts tickets sales. First, it would enhance the visibility of the
artists. Secondly, it allows consumer to use the money he would
have spent in order to buy the CD to buy concerts tickets.
Mortimer and Sorensen (2012) followed this lead and showed
that illegal downloading had a positive effect on all artist's
concert revenues except for the most famous ones.
However, piracy could not only have made musicians earn
more, but it also made them save some. They are often big music
consumers. Piracy can give them access to a wide source of
inspiration and information. We underline that the costs of the
musical research are “sunk” (= lost). The diminution of them
could be a strong attraction toward production, since the success
and, moreover, the profitability of a musical research is very
random. Finally, the freedom allowed by piracy is by itself a
stimulant. The artist doesn't need to ask himself at any moment

98
“will this song make me progress enough to compensate its
cost?”

2. Money and the artists motivation

“Insisting that people will only produce creative works
when they can claim exclusive ownership rights ignores the
spread of practices that depend on sharing and co-creation
and easy access to creative works; this insistence
privileges copyright owners over these creators.” (LSE
2013 p.10)
Social prestige and pleasure of the profession are likely to be
motors much more powerful for music activities than money.
The link between investment and profitability is so tenuous that
Oberholzer-Gee and Strumpf (2009 p.22) question: “Given these
poor prospects, why are there so many musicians? One
explanation is that musicians enjoy their profession. Under this
view, musicians take pleasure from creating and performing
music, as well as aspects of the lifestyle such as flexible hours
and the lack of an immediate boss. If this theory is correct, the
economic impact of file sharing is not likely to have a major
impact on music creation.”
This is one side of the problem: will they pursue music even if
they don't earn much money? However, the opposite side is a
problem too: will they pursue music because of the income
forecast? We can doubt that people can force their talent
indefinitely to fit the business opportunities and still succeed in
creating good music.
The impact of demand on quality of the offer can also be
negative. It is widely stressed by Becker in Outsiders (2012): the
musicians have to make the choice between making good music
and being “commercial”. This perverse effect from the public to
the artists was already denounced by Aristotle in the Poetics,
chapter XIII: “[It is only the weakness of the judgment of the
public which makes consider it superior, because poets (tragedy
and comedy authors) compose according to the public wishes.]”

99
Thus, theoretically, the negative impact of the variation of
income in record industry is unlikely to have an effect on music
production. The empirical data invalidates definitively this
hypothesis.

3. Empirical evidence
“[The situation it paradoxical, because if on one hand we
assist, since the beginning of the 2000's decade, at a
continuous fall of prerecorded music sales, non-
compensated by the progress of new numeric market, on
another hand, we are forced to admit that the musical
production was never as diversified and it diffusion as
universal.]” (Menard 2011)
“Overall production figures for the creative industries
appear to be consistent with this view that file sharing has
not discouraged artists and publishers.”(Oberholzer-Gee
and Strumpf 2009)
Despite the alarming prophecies and warnings from
economists and the music industry, music production is pretty
healthy. It has even risen since online piracy began: “While
album sales have generally fallen since 2000, the number of
albums being created has exploded. In 2000, [according to
Nielsen Soundscan data] 35,516 albums were released. Seven
years later, 79,695 albums (including 25,159 digital albums)
were published.” (Oberholzer-Gee and Strumpf 2009)
Besides, according to Rob and Waldfogel (2006), the 5 majors at
the time representing 80% of sales, produced only 7000 albums a
year, when the total of new albums was 30 000.48 The fact that
majors are only responsible for a little part of music production is
confirmed by Bourreau, Moreau and Senellart (2011) about
France. It seems to be something widely admitted.

B. The contribution of piracy to market efficiency

We can define an efficient market as one allocating resources in a
way which favors production and innovation or, in one word, the

48 They quote refer to an article of Ziemann (2002), which refer to the RIAA. However, these data,
even if they were quoted by a lot of people, can't be found of the website of this organization.

100
common good. According to neoclassic theory, a market would
be efficient if there is a pure and perfect competition. (Arrow and
Debreu 1954) Illegal downloading is very likely to enhance the
music market's efficiency, through innovation motivation, and
still does, through the reduction of information asymmetry.

1. Reducing information asymmetry

“There is asymmetric information insofar as quality is
known to the producer but not to the consumers.”
(Belleflamme and Peitz 2010 p.1249)
“Music sampling has the potential to reduce this
uncertainty, increase market efficiencies, and permit a
broader base of talented musicians and singers to be
successful.” (Bhattacharjee et al. 2006b p.1507)
“[[According to Takeyama 2002] The copy is Pareto-
efficient, because it manifests the work's quality without
investing in publicity and prevent the introduction of low-
quality goods which are not socially desirable.]”
(Davidoci-Nora 2005 p.15)
It is widely admitted that a pure and perfect competition
doesn't exist, since its conditions, such as the simultaneity of
transfers of goods, are impossible. However, we can still try to
make market fairer and more competitive.
One of the conditions is the actor's equal information of actors.
However, consumers do not know the CD content before buying
it and listening to it. The producer does. Therefore, the
arrangement between them two is unfair.
As told in Pindyck and Rubenfield50, quoted by Bhattacharjee et
al. (2006 p.1507), “if consumers do not have accurate
information about market prices or product quality, the market
system will not operate efficiently. This lack of information may
give producers an incentive to supply too much of some products
and too little of others. In other cases, some consumers may not
buy a product, even though they would benefit from doing so,
49 They refer to the article of L. Takeyam in “Piracy, Asymmetric information and product quality”,
in “The Economics of Copyright : Developments in Research and Analysis”
50 Pindyck, Robert S., and Daniel L. Rubinfield. 2005. Microeconomics, 4th ed. Upper Saddle
River, NJ : Pearson/Prentice-Hall

101
while other consumers may buy products that leave them worse
off. For example, consumers may buy pills that guarantee weight
loss only to find that the pills have no medical value”
Finally, this asymmetry makes that people will buy, and so
motivate, works they wouldn't have if they knew their “real
quality”. Then, the industry wouldn't try to produce something
which will be “good”, but a product able to stimulate enough
curiosity to trigger the purchase. That's probably what happened
with the album during a long time: they had (have?) a few good
title to attract and the rest was here to fill.
Asymmetric information can also be harmful to sales themselves.
The consumer, finding themselves to be often disappointed,
couldchoose to abandon the inefficient market. As told L.Karpik
in L'économie des singularités (2012 p.43): “[With imperfection
of information, the standard theory focus on the formation of the
price, whereas the theory of singularities, in a similar situation,
give less attention to the prices than to the multiplication of
wrong choices in the bought products which, if durable
generalizing, can only lead to the autodestruction of the
market.]”
Piracy permits to access to the whole musical product and to
know if the consumer does love it, how they want to listen to it
and if it's adapted to its intended use. For example, some music is
more suitable for running or dancing than napping. In addition,
the real quality of an album often appears with repetition.
As we saw, economists qualify the possibility to familiarize with
a good before buying it as the sampling effect. However, I find
this term relatively inaccurate for piracy, since it's not a
“sample”, a small piece, but the whole product. Piracy doesn't
only let you sample, it lets you fully experience it, which is the
only way to really know the value of an album. Thus illegal
downloading “can induce a Pareto improvement of social
welfare as it has the potential to solve the adverse selection
problem as well as preempt the production of socially

102
undesirable low quality which might otherwise be produced in
the absence of copying.” (Takeyama 2002)

2. Innovation motivation
“Peer-to-peer file sharing services, may have actually
helped assist in establishing a market for digital singles
even before legal means of selling them existed.” (El
Gamal 2012, p.46)
“While viewed only as a legal matter, online piracy has
shown to be an important source of technological and
strategic innovation to both industry incumbents and
newcomers.” (Choi and Perez 2007 p.168)
“As stated succinctly by one official to an innovator
offering a service that the labels could use to protect their
music online, “You don’t understand. Our job is to keep
you down.””(Carrier 2012 p.945)
As we saw, majors put a lock on legal downloading. They had
to be confronted with the evidence that legal downloading was a
better anti-piracy measure cumulated with the power of the
pressure from Apple to drop it and let it happen. (Carrier 2012)
Even after that, online downloading pushed the industry to
improve its offer.
Easley (2005 p.5), in one of his papers, presents “evidence
supporting the notion that exposure to music piracy actually
played a role in pushing record labels: to adopt Internet
technologies (those exposed to piracy were more likely to be
early adopters of Internet technology), to create richer and more
fully featured websites, and to experiment with electronic forms
of distribution that are either proprietary or in other ways non-
threatening (e.g., short clips of songs).”Choi and Perez (2007)
also explain that pirated files had, at the beginning, a better sound
quality (compression rate) than legally purchased ones. The race
lasted several years and, in 2004, pirates were still ahead.
“While frequently perceived as a fraternity of rebellious
and socially inept teenagers, online piracy communities
actually had their roots among the most idealistic and
sophisticated technologists.”(Choi and Perez 2007 p.170)

103
 It is coherent with the global initial spirit of informatics
pirates. At the beginning, P2P was a privileged way to share data
between researchers in technology and science. In the 70s and the
80s Internet and informatics were seen as ways to accelerate
progress and most software was open source. The first “pirates”
formed communities of sorts “serving as the central hubs for
engineers and programmers from all over the world”. They are
at the origin of Linux and Apache for example. The open source
software forced the commercial ones to raise their standards. By
itself, the P2P would also open interesting perspectives for the
legal distribution. Linux 9 as World of Warcraft were distributed
this way (Choi and Perez 2007 p.8). In the case of Linux 9, in
2003, 21,15 terabyte of data would have been downloaded in 3
days. The editor, Red Hat, estimated having saved between 20
and 60 thousand dollars thanks to P2P. (Roth 2005) Then,
remember that, according to the 9th circuit court, Napster would
have proven that its system was able to be of significant
commercial use (Carrier 2012 p.14). So P2P might have also
have been a way to distribute music.

IV. Chapter conclusion

« [They [the Majors] mistreated the musicians. They
mistreated the fans and, most important, they denigrated
music. For this reason, they must improve their ways or
die.]” Moby51
“We conclude that empirical evidence does not establish a
conclusive – much less exclusive – link between file-
sharing and declining sales of recorded music.
Other factors play a much more important role. Providing
user-friendly, hassle-free solutions to enable users to
download music legally at a reasonable price, is a much
more effective strategy to enforce copyright than a heavy-
handed legislative and regulatory regime.” (LSE 2011p.9)
Remember the main assertion repeated (in substance) by
politicians: “[p]iracy is flat, unadulterated theft and it should be
dealt with accordingly.”52 Some record industry officials even
51 http://www.chartsinfrance.net/Moby/news-72484.html
52 Gary Locke, U.S. Sec’y of Commerce, Remarks at Intellectual Property Enforcement at Belmont

104
assimilated it to breaking into a shop and stealing merchandise.
(Carrier 2012p.899) By now you would have understood that
these affirmations are absurd. Digital copy takes sensu stricto
nothing from no one. The only possible grievance is the existence
of a deadweight loss for the producer and this is an abstract
concept which can't be assumed.
Then, we showed that:
- The correlation between illegal downloading and the fall
of music sales is questionable in its size.
- EVEN IF this doesn't exist, without any information about
the evolution of expenses evolutions, it could be unrelated
to the profits of the music industry
- EVEN IF this does exist, the control of bias is insufficient
to make it significant in any way.
- Finally, EVEN IF all this is as stated, the negative impact
on music production would still be doubtful, with the
empirical data refuting it.
Thus, we can affirm without any doubt that the doctrine doesn't
reasonably prove the existence of a negative (nor positive) global
economic impact of illegal downloading on sales. In this matter,
the “truth is elsewhere” than in existing doctrine.

University (Aug. 30, 2010), available at

http://www.commerce.gov/news/speech/2010/08/30/remarks-intellectual-property- enforcement-
belmont-university-nashville-tennes; Cité par Carrier (2012 p.9)

105
 Conclusion
I hope you liked this little overview essay. Its objective, I
repeat, it is not only providing answers but proving that questions
were ill-conceived. Awareness of what effect the illegal
downloading had on the economy is a qualitative question
before, maybe, being a quantitative one. It appears that this
impact was of a remarkable complexity: forcing the industry to
innovate, motivating the ways in which music was consumed,
opening the path of alternative ways of promotion and so on.
Besides, it allows the population to have access to an infinite
supply of music, which is a formidable social accomplishment.
The mere will to aggregate all these effects into only one
quantity, the variation of prerecorded music, is counter-
productive on the scientific aspect and can only be symptomatic
of an excessive tendency to simplify. Maybe for polemical,
political reasons?
Therefore, even after the question of the effects of illegal
downloading has been answered, questions will remain: “How
can we sell [non-rival and non-excludable digital goods] in a
market and get value from it when they can freely circulate from
one consumer to another?” (Bacache et al. 2009) Several
researchers seem to think that live performances will have an
increasing role in the remuneration of the production costs.
Still, I think that the most important thing this book shows
implicitly are the flaws of the paradigm on which the studies it
disproves are based on.
Firstly, the doctrine considers as exclusive of any other
consumer's motivation the search for materialist utility. Ignoring
the moral considerations, the will to contribute to a system or
supporting an artist and so on. The fact that these dynamics are
hardly quantifiable doesn't mean they don't exist.
Secondly, most economists seem to consider that all markets are
alike. However, as L.Karpik showed in L'économie des

106
singularités (notably through the study of the markets of arts and
of lawyers), it is absolutely wrong. For example, the automobile
market and the music one are obviously different. If you don't
have a car, you cannot go to work and you cannot download a car
on your computer. On the contrary, the material consequences of
the inability to buy music are limited and you can get it without
anything from someone. The assumption that these markets could
have the same dynamics is obviously preposterous.
It is important to underline the lack of scientific rigor in the
construction of the demonstration developed by economists. A lot
of logical links are assumed, even when they were not obvious.
As we showed, it was even the contrary, a lot of such
assumptions were just hiding enormous flaws. The most obvious
example is the idea that a lower profitability would necessarily
induce a diminution of production quality, quantity and diversity.
Even if such a link could happen systematically, it doesn't mean
that it is the only force at work or that it will always conduct
identically. A simple tautology reveals the ellipsis of the
economists: this only as far as piracy hurts artistic music
production that piracy hurts music production.

Finally, the fundamental question this book asks is: Does

economic analysis have a future without sociology?

107
Table of contents
Introduction....................................................................................................4
First chapter: Setting the elements of thought...............................................6
I.The essential of the economic doctrine about piracy..........................................7
A.The fall of music sales................................................................................................7
1.The fall......................................................................................................................................................................7
2.Methods to estimate the fall of sales.........................................................................................................................9
B.The different types of impact of piracy on music sales............................................10
1.The displacement or substitution effect..................................................................................................................10
2.The potentially positives effects of piracy..............................................................................................................11
C.Neutralizing the bias.................................................................................................13
1.The impact of the substitutes...................................................................................................................................14
2.Interest for music and variation of the music quality..............................................................................................14
3.The demographic evolution.....................................................................................................................................15
4.Variation of the price of music................................................................................................................................15
5.The variation of household income.........................................................................................................................16
6.A “librarying” effect?..............................................................................................................................................16
D.Conclusions about the role of piracy........................................................................16
1.Studies finding a negative effect.............................................................................................................................16
2.Studies dealing with the impact of anti-piracy policies..........................................................................................18
3.Studies assessing the positive or neutral effect of piracy........................................................................................19
E.Impact of piracy on music production and the economy in general.........................20
1.Impact of piracy on music production....................................................................................................................20
2.The impact of the fall of music sales on the economy............................................................................................21
II.Data about the music market and its actors.....................................................22
A.The structure of the music market............................................................................22
1.The different phases of the value chain and their share..........................................................................................22
2.Music producers and distributors and theirs resources...........................................................................................24
B.The music and the digital revolution........................................................................27
1.The impact of digital revolution on costs................................................................................................................27
2.Retrospective: The constant certitude of being on the edge of extinction..............................................................28
3.The laborious birth of legal downloading...............................................................................................................29
4.The struggle of countries against illegal downloading...........................................................................................31
5.The lawsuits of the RIAA.......................................................................................................................................32
6.The Digital Rights Management (DRM) technologies...........................................................................................34
C.The artists..................................................................................................................35
D.The pirate..................................................................................................................37
1.The proportion of pirates.........................................................................................................................................37
2.The pirate profile.....................................................................................................................................................38
3.Motivations of pirates.............................................................................................................................................39

Second chapter : Exploitation of the data....................................................41

I.Questioning the alleged correlation between piracy and the fall of profits.......42
A.Sales, a flawed indicator inaccurately accounting for profit....................................42
1.Sales, an indicator too wide to be significant and too narrow to account for the fall of profits.............................42
2.Ignorance of the expenses of music industry..........................................................................................................43
3.The probable diminution of costs thanks to technological innovation...................................................................44
B.Sales, a data set difficult to monitor..........................................................................46
1.Questioning the macroeconomic data of music sales.............................................................................................46
2.Questioning of the monitoring of sales through surveys........................................................................................47

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 C.The fluctuating quantifications of piracy..................................................................48
1.The lack of rigor in the definition of piracy............................................................................................................48
2.The fluctuating evaluations.....................................................................................................................................49
3.Questioning the evidences brought by studying the impact of repression..............................................................50
II.The neglect of numerous important variables in the establishment of causality
...........................................................................................................................51
A.Questioning the use of average incomes to control the bias of revenue variations..51
1.The variable link between income and music consumption...................................................................................52
2.The impact of inequalities on sales.........................................................................................................................52
B.The irreducible problem of interest in music............................................................53
1.Digital revolution = piracy; the terrible corollary of the use of broadband as proxy for piracy.............................53
2.Piracy and interest in music: the emulation effect..................................................................................................54
C.The poor control of technological changes...............................................................55
1.The negative effect of legal downloading and streaming.......................................................................................55
2.The flawed control of concurrent goods impact.....................................................................................................56
3.The life cycle of the supports..................................................................................................................................57
D.The actions of the music industry as an uncontrolled bias.......................................57
1.The rejection of legal downloading.........................................................................................................................58
2.Consequences of the opposition to innovation........................................................................................................60
3.The consequences of antagonizing of the consumer...............................................................................................63
E.Potential bias: the evolution of market dependency and distribution process..........66
1.The variation of the market dependence of artists..................................................................................................66
2.The modification of the physical distribution ways................................................................................................66
F.If most of the variables are controlled, why cannot we explain the differences
between different variations?........................................................................................67
III. The preposterous assumption of a negative impact of a fall of sales on music
production..........................................................................................................70
A.Revenues and musical production: a long story.......................................................70
1.The (small) share of CD sales in the artists revenues.............................................................................................70
2.Money and the artists motivation............................................................................................................................71
3.Empirical evidence..................................................................................................................................................72
B.The contribution of piracy to market efficiency.......................................................72
1.Reducing information asymmetry...........................................................................................................................73
2.Innovation motivation.............................................................................................................................................74
IV.Chapter conclusion........................................................................................75
Conclusion...................................................................................................77
Bibliographie...............................................................................................81

109
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