Ups and downs Economic and cultural effects of file sharing on music, film and games

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On Februry 18, a report commissioned by the ministry of Economic Affairs, the Justice Department and the ministry of Education Culture and Science called "Ups and downs Economic and cultural effects of file sharing on music, film and games" was released. A few days ago, the official English translation was released as well.

The research shows that the economic implications of file sharing for welfare in the Netherlands are strongly positive in the short and long terms. File sharing provides consumers with access to a broad range of cultural products, which typically raises welfare. Conversely, the practice is believed to result in a decline in sales of CDs, DVDs and games.

Determining the impact of unlicensed downloading on the purchase of paid content is a tricky exercise. In the music industry, one track downloaded does not imply one less track sold. Many music sharers would not buy as many CDs at today’s prices if downloading were no longer possible, either because they cannot afford it or because they have other budgetary priorities: they lack purchasing power. At the same time, we see that many people download tracks to get to know new music (sampling) and eventually buy the CD if they like it. To the extent that file sharing does result in a decline in sales (substitution), it usually entails a transfer of welfare from producers to consumers. With estimated welfare gains accruing to consumers totalling around €200 million a year in the Netherlands, music producers and publishers suffer turnover losses of at most €100 million a year. These calculations are necessarily based on several assumptions and contain uncertainties as many of the underlying data are not precisely known. Whereas comparable figures cannot be provided for the film and games industries, they follow a similar logic.

Estimates of the volume of global unauthorised download traffic vary strongly, but all signs are that this involves many billions of files per year, constituting a substantial share of international internet traffic. The number of file sharers in the Netherlands is relatively high, which can be explained by the early introduction of broadband in the country and its high penetration. Music is by far the most frequently downloaded product. Based on a compilation of different sources, the number of music downloads in the Netherlands can be estimated at between 1.5 and 2 billion per year, which would amount to 7.5 downloads for each track sold. That said, not all downloaded tracks are actually listened to as consumers tend to download a great deal more music than they listen to.

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