Ten Years of File Sharing and Its Effect on International Physical and Digital Music Sales

Abstract

Music consumption is arguably at a historic high. File sharing technology would undoubtedly be welfare-improving provided that it did not displace music sales. Yet music purchases have decayed sharply since the introduction of file sharing a decade ago. This paper seeks to measure the effect of peer-to-peer file sharing on music sales. I use a long panel of twelve years of country-level data containing information on both physical and digital music sales and on Internet and broadband penetration. This database includes not only information going back to a period when peer-to-peer downloading did not exist, but also includes more recent information up to 2008. I employ Internet connectedness and the speed of Internet connections as proxies for unauthorized downloading, and study whether physical and total country-level music purchases have decayed more rapidly in countries experiencing faster increases in the adoption of file swapping technology. This paper uses the increase in broadband penetration replacing dial-up in order to isolate the effect of file sharing from any other possible Internet impact on music sales. My results indicate that peer-to-peer file-sharing can explain a reduction in music sales that ranges from half of the actual decrease in sales up to the entire decrease.

Keywords: music, file sharing, internet, intellectual property

JEL Classification: L82