Effect of Piracy on Music Industry

Topics: Copyright infringement, Streaming media, File sharing Pages: 46 (17239 words) Published: August 22, 2013
Institute for Prospective Technological Studies Digital Economy Working Paper 2013/04

Digital Music Consumption on the Internet: Evidence from Clickstream Data

Luis Aguiar Bertin Martens


Report EUR 25851 EN

European Commission Joint Research Centre Institute for Prospective Technological Studies Contact information Address: Edificio Expo. C/ Inca Garcilaso, 3. E-41092 Seville (Spain) E-mail: jrc-ipts-secretariat@ec.europa.eu Tel.: +34 954488318 Fax: +34 954488300 http://ipts.jrc.ec.europa.eu/ http://www.jrc.ec.europa.eu/ This publication is a Working Paper by the Joint Research Centre of the European Commission. It results from the Digital Economy Research Programme at the JRC Institute for Prospective Technological Studies, which carries out economic research on information society and EU Digital Agenda policy issues, with a focus on growth, jobs and innovation in the Single Market. The Digital Economy Research Programme is co-financed by the Directorate General Communications Networks, Content and Technology. Legal Notice Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of this publication. Disclaimer: The views expressed are those of the authors and may not in any circumstances be regarded as stating an official position of the JRC or the European Commission. Europe Direct is a service to help you find answers to your questions about the European Union Freephone number (*): 00 800 6 7 8 9 10 11 (*) Certain mobile telephone operators do not allow access to 00 800 numbers or these calls may be billed.

A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server http://europa.eu/. JRC79605 EUR 25851 EN ISBN 978-92-79-28901-9 (pdf) ISSN 1831-9424 (online) doi:10.2791/83798 Luxembourg: Publications Office of the European Union, 2013 © European Union, 2013 Reproduction is authorised provided the source is acknowledged. Printed in Spain

Abstract The goal of this paper is to analyze the behavior of digital music consumers on the Internet. Using clickstream data on a panel of more than 16,000 European consumers, we estimate the effects of illegal downloading and legal streaming on the legal purchases of digital music. Our results suggest that Internet users do not view illegal downloading as a substitute to legal digital music. Although positive and significant, our estimated elasticities are essentially zero: a 10% increase in clicks on illegal downloading websites leads to a 0.2% increase in clicks on legal purchases websites. Online music streaming services are found to have a somewhat larger (but still small) effect on the purchases of digital sound recordings, suggesting complementarities between these two modes of music consumption. According to our results, a 10% increase in clicks on legal streaming websites lead to up to a 0.7% increase in clicks on legal digital purchases websites. We find important cross country difference in these effects. Keywords: Digital Music, Copyright, Downloading, Streaming. JEL classification: K42, L82, L86, Z1.


1 Introduction
The impact of music piracy on legal sales of music has been studied extensively in the empirical literature, focusing mainly on legal music sales in the form of physical CDs. Most studies find that piracy harms revenues, with estimated sales displacement rate far below one. That is, music consumers are found to substitute legal music consumption for illegal music consumption, but much of what is consumed illegally would not have been purchased if piracy was not available. There is a rather clear consensus on the negative effects of online piracy on the off-line physical sales of recorded music. Less attention has been paid, however, to the effect of online illegal music consumption on the online legal sales of digital music. Since the launch of the iTunes music store in 2003, the availability...
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