Ah, good old music piracy. Incredibly, it’s been eleven years since Napster Beta came out. During this period, album sales have fallen a substantial amount in the US, among other countries. Presumably these two things are related, though the most careful paper on the topic (Oberholzer-Gee and Strumpf’s 2004 JPE) used quite detailed individual-level data and found no effect of internet downloads on sales of individual albums. They tossed this fact in as an aside, but I found it quite persuasive: the most popular genres for illicit mp3s saw almost exactly the same decline in sales as genres for which mp3 downloading was less common.
In any case, if it is true that Napster and the like substituted for sales, might bands have responded by touring more often? Mortimer et al gather comprehensive album sales and concert touring data for the US from 1995 to the mid-2000s. Since 1999, total concerts performed, and total ticket sales, have increased. This occurred even though the price of concerts has increased much faster than inflation. The effect was more pronounced in cities with higher broadband penetration. At the artist-level, concert revenues for the top 50 concert touring artists each year has fallen slightly since 1999, whereas revenues have increased monotonically as the rank of the band in terms of concert revenues increases; that is, revenues fell for superstar artists, went up slightly for moderately popular touring bands, and went up substantially for less popular artists. The same is true of album sales during this period: sales decreased substantially for top-selling bands, less so for less-popular bands. Data from an internet database of music releases also suggests that the number of new artists, and the number of CDs released each year, increased substantially during this period, but I fear the authors may be misreading this evidence. There are something like 30000 albums “released” (as in, available somewhere for sale) in the US each year, though many of these sell only tiny numbers. If the music database shows a doubling of new artists CD information, then since the database obviously isn’t tracking every CD, we may just be capturing an lowering cutoff for how successful a CD needs to be for someone to bother to enter it into the MusicBrainz database.
The sum of evidence is convincing that during the past decade, musicians made up for lost sales revenue by touring more often. I don’t know that Napster/mp3 services are necessarily the reason: bands also offered samples online, Youtube music videos were watched by huge numbers of people, music blogs made it easier to find new tunes, Pandora and the like broke the stranglehold of radio, etc. I also wonder why the authors don’t use data on downloads directly. Is it in fact true that downloads are more weighted toward smaller bands than in-store sales? My intuition says yes, but I have seen anecdotal evidence suggesting that there is no difference between the two. What is the magnitude of mp3 downloading during this period? Has it been continuously increasing?
More importantly, though, no one has yet written the important question when it comes to music piracy: was it welfare increasing or decreasing? In the static sense – i.e., no impact on innovation – it is necessarily good for welfare, since the number of tunes supplied by assumption stays the same, and the price falls to marginal cost (to zero), hence deadweight loss is reduced and welfare increases. Dynamically, though, if band entry slowed, then the effect of welfare is ambiguous. The evidence, given caveats above, seems to suggests that band entry did not decline. Therefore, welfare has increased. Essentially, you are being asked whether loosening copyright on music would be welfare increasing, and anyone who has read the political economy history here surely has the prior of “yes, it would.”
That said, testing the proper counterfactual, “the internet exists with all its other effects, but there is no such thing as mp3 sharing,” is a difficult job. I have some very preliminary ideas in this direction, so hopefully I’ll be able to share something here next year.