15 Pages Posted: 25 Jan 2012

Date Written: January 23, 2012

Abstract

This report examines data on the effects of Internet peer-to-peer (P2P) file sharing activities on music purchasing which was obtained from a survey commissioned by Industry Canada. The survey was designed to inform Industry Canada's policy development work and ultimately therefore support better policy decisions regarding the copyright law in Canada. In order to support its policy decisions regarding the copyright regime in Canada, Industry Canada commissioned a survey by Decima Research in 2006 which was designed to measure the extent to which peer to peer (P2P) file-sharing activities act as substitutes or complements to music purchases. Given this purpose the Decima survey asked respondents to comment on their behaviour in the absence of P2P file-sharing, as follows:

Considering the songs that you downloaded for free through P2P networks during 2005 a) what % would you have purchased at paid music sites if they were not available through P2P b) what % would you have purchased as part of a music CD if they were not available through P2P

After analyzing the answers to this question, I report on two key findings: 1. three out of every four respondents said that if P2P were not available they would have purchased some or all of the music which they downloaded; and 2. almost two-thirds of the hardcore P2P downloaders (those who indicated in the survey that they only acquired music by P2P) said they would have purchased one-third of the tracks they downloaded if the songs were not available on P2P network. This is estimated to amount to an average additional expense of $168 per person, adding up to hundreds of millions of dollars in extra revenue for the music industry per year from this group alone.

This analysis of survey data then suggests that P2P downloads have strong negative effects on legitimate music purchases and that P2P downloading acts as a substitute for legitimate music purchases. One might reasonably infer from this analysis that stronger copyright laws would substantially increase music purchases and music industry sales revenues and, by implication, increase artist income, industry employment, economic growth and government tax revenues in Canada. My analysis not only focuses on an important survey question which to date has not been analysed by the researchers hired by Industry Canada, it also contradicts the results of the original analysis of the data commissioned by Industry Canada, first published on Industry Canada's website in a 2007 report entitled, Don’t blame the P2P file-sharers: the impact of free music downloads on the purchase of music CDs in Canada, and then subsequently republished with changes by the authors in the Journal of Evolutionary Economics in 201'3