File Sharing and Copyright

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Felix Oberholzer-Gee and Koleman Strumpf (Harvard Business School) have a paper out in which they examine whether file sharing (and thus a weaker copyright) does negatively impact on incentives to create, release and market cultural works. Their answer is no (to the extent that data is available). Both for empirical reasons (considerably more music, books, and films have been released in 2007 and in 2000) and theoretical reasons (substitutes vs complements; artistic motivations vs financial motivations).

There is no doubt that file sharing substantially weakened the protection of copyrighted works. Yet, as our discussion shows, the outcome of this experiment is far from certain. Three conditions need to hold for less-certain rights to undermine the incentives for artistic production: original works and copies on file-sharing networks must be reasonably close substitutes; artists and the entertainment industry must not be able to shift from previous sources of income to the (similarly profitable) sale of complements; and falling incomes must be an important-enough motivator for artists to reduce production. Only if all three conditions hold will file sharing hurt social welfare.

They conclude

As our survey indicates, the empirical evidence on sales displacement is mixed. While some studies find evidence of a substitution effect, other findings, in particular the papers using actual file-sharing data, suggest that piracy and music sales are largely unrelated. In contrast, there is clear evidence that income from complements has risen in recent years. For example, concert sales have increased more than music sales have fallen. ... The same holds true for the question how artists would respond to weaker monetary incentives. Looking at aggregate output – the number of recordings, books, and movies produced every year – we see no evidence that file sharing has discouraged the production of artistic works.

The last point has to be taken in the context that the income prospects for most artists are weak no matter what. In the US, out of 50'000 works released, only 950 sell more than 25'000 copies. Which is probably less than artists need to break even.