How Bad Is Music File Sharing? – Part 20

In an article entitled “The Effect of Digital Sharing Technologies on Music Markets: A Survival Analysis of Albums on Ranking Charts” published in Management Science, Bhattacharjee et al. (2007) made a comparative analysis if the survival time of albums in the U.S. Billboard top 100 weekly charts differs after the time period of mid 1998 to 2000. This time span represented a watershed period in der music industry’s history. In these years the MP3 format was introduced and rapidly gain popularity. The Digital Millenium Copyright Act was passed in the U.S. Napster was emerged und popularized the use of P2P file sharing networks. DVDs gained popularity as well as online chat rooms and computer games and it was the beginning of a downturn of the overall economy after the dot.com bubble bursted.

In a two stage model, the authors considered in the first phase the cumulative effect of technology and other factors on chart survival, whereas in the second phase they attempted to isolate the impact of file sharing on chart success.

Beside other interesting results, which will be discussed later, Bhattacharjee et al. (2007) found that file sharing “(…) has no statistically significant effect on survival. However, a closer analysis reveals that the effect of sharing appears to differ across certain categories. Successful albums (albums that debut high on the chart), are not significantly impacted by sharing. However, online sharing has a low but statistically significant negative effect on survival for less successful (lower debut rank) albums” (Bhattacharjee et al. 2007: 1361).

In order to come to these results, the authors collected over 200 weeks of chart information for 1995 to 2004 from the weekly Billboard top 100 charts. In the first phase, as explanatory variables of album survival before and after the time span from 1998 to 2000 debut rank of the album, reputation of the artist, record label (minor or major), and artist descriptors (solo female or male, group) were chosen. In the second phase file sharing was isolated in order the measure its impact on chart success. Therefore, the authors used data on sharing activity on WinMX for more than 300 albums on a daily basis over a period of 60 weeks during 2002 and 2003. Since Bhattacharjee et al. (2007) limited their research only on albums that appear on the charts, the findings relate to a small proportion of all albums released annually in the U.S., which can be estimated of about 30,000 titles. However, this small set of successful albums provides the lion’s share of the profit for the record companies. If, thus, file sharing negatively affect chart survival, this would also lead to a decline in record sales. If not, than file sharing cannot be made responsible for downturn in the music industry.

Survival was modelled as the length of time that an album remains on the charts before it drops off finally. In three different linear regression model the dependend variable “survival” was explained by a vector of control variables (debut rank, superstar status, distributing label and debut month, gender) in order to measure in the first phase of the analysis, how survival has changed from the period before 1998 to 2000 to the period after this time span.

The descriptive statistics highlight that average survival decreased from about 14 to 10 weeks. However, debut rank improved from 49 to less than 40 on average. The number of album released were more or less the same in both periods. The number of superstars appearing on the charts decreased marginally after 2000. Finally, the number of albums from minor labels increased substantially in the post-period.

In the second phase of the analysis the impact of file sharing on album’s chart survival was tested. Since a direct estimation is not appropriate due to the endogenity problem, the authors had to find an instrument variable that affected file sharing but not chart success. Therefore they used the announcement of the Recording Industry Association of America (RIAA) to start legal action against individual file sharers as an instrument.  It could be shown that the announcement in June 25, 2003 led to decrease of file sharing’s intensity in the WinMx network of about 82.1%. In order to avoid temporal effects or exogenous variables, the time window was restricted for four months before and after the RIAA announcement.

Further is has to be stated that the authors did not measure the impact of downloading, but they observed if an album was available for download (“shared”) in the test period. Therefore they recorded the average number of copies of an album “shared” on the network during the debut week as well as the maximum available copies for a file over a 4-week period or until the album drops off the charts.

The second phase analysis highlighted that the effect of file sharing on chart survival is not significant. However, less popular albums (with a debut rank worse than 20) were negatively affected by file sharing than popular album (with a high debut rank) that did not suffer any negative on chart success by file sharing. In addition, the authors found that albums from major labels tend to last longer on the album charts than albums of minor’s, the latter experienced a significant beneficial shift after 2000, since their albums surviving longer on the charts than before 1998. Bhattacharjee et al. (2007: 1372) assumed “(…) that minor labels have utilized file sharing networks to popularize their albums, then the majors have an added incentive to fight file sharing.”

This assumption led them to conclude that “[t]he innovative approaches adopted by the minor labels might provide strategies for major labels to emulate. One approach that minor labels have been adept at is embracing the use of technologies to brand and reach out to potential customers. In this vein, it has been suggested that sharing through online networks might have beneficial sampling and word-of-mouth effects” (Bhattacharjee et al. 2007: 1372).

References:

Bhattacharjee, Sudip, Ram D. Gopal, Kaveepan Lertwachara, James R. Marsden and Rahul Telang, 2007, “The Effect of Digital Sharing Technologies on Music Markets: A Survival Analysis of Albums on Ranking Charts.” Management Science, Vol. 53, No. 9 (September 2007), pp. 1359-1374.

In the next part Felix Oberholzer-Gee’s and Koleman Strumpf’s widely discussed paper on “The Effect of File Sharing on Record Sales”, in which they concluded that “(…) there is no statistically significant effect of file sharing on sales” will be summarized.