Economists Felix Oberholzer-Gee and Koleman Strumpf have written some previous papers on this subject, but they’ve just come out with a new working paper on how weaker copyright protection benefits society (pdf file). Michael Geist has an excellent overview and summary of the paper. To understand the key points made by the paper, you need to understand the purpose of copyright — something that many people are confused about. It’s always been about creating incentives to create new works. Copyright maximalists and defenders of strengthening copyright laws always suggest that without copyright, there would be much less creative output, because there would be much less incentive to create. History has shown that to be false. If you look back at the age when all creative output had to be registered to be covered by copyright, studies showed that only a very small fraction of content creators even bothered, because copyright wasn’t the incentive. It’s only now, when copyright is automatic, that people seem to think that copyright is somehow necessary.
But the paper shows why this isn’t true, and highlights a few points that we’ve made repeatedly over the years. Even if there are fewer “album” sales, more people are creating more music than ever before in history, and more people are making some money from the production of music — even if it’s not from album sales directly:
Overall production figures for the creative industries appear to be consistent with this view that file sharing has not discouraged artists and publishers. While album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published (Nielsen SoundScan, 2008). Even if file sharing were the reason that sales have fallen, the new technology does not appear to have exacted a toll on the quantity of music produced….
Similar trends can be seen in other creative industries. For example, the worldwide number of feature films produced each year has increased from 3,807 in 2003 to 4,989 in 2007 (Screen Digest, 2004 and 2008). Countries where film piracy is rampant have typically increased production. This is true in South Korea (80 to 124), India (877 to 1164), and China (140 to 402). During this period, U.S. feature film production has increased from 459 feature films in 2003 to 590 in 2007 (MPAA, 2007).
So the idea that file sharing has somehow damaged creative output is simply not supported by the numbers. At the same time, the paper also makes the other point that we’ve made: that as infinite goods spread more widely, it only tends to increase the ability to make money from other scarce complements. After going through a few different studies, the paper notes:
As these results show, income from the sale of complements can more than
compensate artists for any harm that file sharing might do to their primary activity. We
are not aware of empirical work that has looked at these effects in industries other than
music. But the potential of complements to provide ancillary income is certainly not
unique to the music industry. In film, for instance, the International Licensing Industry
Merchandisers’ Association (LIMA) estimates that Hollywood derives $16 billion annually from sales of entertainment merchandise, a figure that exceeds the value of
ticket sales (Film Encyclopedia, 2008).
The role of complements makes it necessary to adopt a broad view of markets
when considering the impact of file sharing on the creative industries. Unfortunately, the
popular press — and a good number of policy experts — often evaluate file sharing looking
at a single product market. Analyzing trends in CD sales, for example, they conclude that
piracy has wrecked havoc on the music business. This view confuses value creation and
value capture. Record companies may find it more difficult to profitably sell CDs, but
the broader industry is in a far better position. In fact, it is easy to make an argument that
the business has grown considerably. Figure 7 shows spending on CDs, concerts and
iPods. The decline in music sales — they fell by 15% from 1997 to 2007 — is the focus of
much discussion. However, adding in concerts alone shows the industry has grown by
5% over this period. If we also consider the sale of iPods as a revenue stream, the
industry is now 66% larger than in 1997…. Technological change will often lead to changes in
relative prices and shifts in business opportunities. Focusing exclusively on traditional
streams of revenue to arrive at a sense of how new technology changes welfare will
typically be misleading.
This looks like another great addition to the literature on the overall economic impact of “file sharing” and copyright. How much do you want to bet Congress will ignore it?