Why Corporate Media Really Hates File-Sharing

I've suspected this for a while, but this study by Cambridge PhD Economics researcher Rufus Pollock (link from Boing Boing) seems to confirm it. Filesharing won't reduce overall music sales, but it does threaten the business model of the major record companies.

In particular, the point estimates imply that the median 'new' artist, whose weekly sales are 2,163 albums, would see a decrease in weekly sales of 101 albums per week were files shared to be reduced by 10%. A similar calculation can be made for an artist of maximum popularity. At the median level of sales for these artist, the estimate implies an increase in sales of 490 albums per week if file sharing were to be reduced by 10%. This stark contrast between the magnitudes of the effects for artists of varying levels of popularity highlights the importance of this heterogeneity in estimating the aggregate effects of file sharing.

A similar calculation can be made for estimating the total effect of file sharing on sales. To estimate the aggregate effect of a 30% reduction in file sharing across the board,33 I simply subtract out the effect of the deleted files from the second stage estimation in Table 4 and then aggregate up to market level numbers using the appropriate weights. The estimated effect of such an across-the- board reduction in file sharing is to increase aggregate sales by 15%. Again, while these calculations were useful for placing the analysis inside the framework of the previous literature, they do not take into account competition effects across albums, and so the effects of file sharing will be overstated in these estimates.

In other words, filesharing reduces sales for the small minority of overhyped corporate rock megastars, but increases the sales of hardworking smaller bands. Which is just what the big record companies fear. They've developed a business model that depends on maximising sales of as small a roster of artists as possible.

Since anything not 'mainstream' doesn't get played on format-driven corporate radio. the only way much of it can be heard either by people risking money on buying an album unheard, or by 'try before you buy' filesharing. Which is just what the big companies don't want. People might start buying self-financed music rather than Madonna, Metallica or whatever four-chords-that-sold-a-million-that-sounds-like-Coldplay-now that they're trying to hype. And that would never do....