01 Jul 2009Working Paper Summaries

File-Sharing and Copyright

by Felix Oberholzer-Gee and Koleman Strumpf

The researchers argue that file-sharing technology has not undermined the incentives of artists and entertainment companies to create, market, and distribute new works. The advent of new technology has allowed consumers to copy music, books, video games, and other protected works on an unprecedented scale at minimal cost. Such technology has considerably weakened copyright protection, first of music and software and increasingly of movies, video games, and books. While policy discussion surrounding file-sharing has largely focused on the legality of the new technology and the question of whether declining sales in music are due to file-sharing, the debate has been overly narrow. Copyright protection exists to encourage innovation and the creation of new works—in other words, to promote social welfare. This essay analyzes the landscape and identifies areas for more research. Key concepts include:

Digital technology has lowered the cost of producing movies and music and allowed artists to reach their audience in novel ways.
It's difficult to argue that weaker copyright protection has had a negative impact on artists' incentives to be creative.
File-sharing has not discouraged authors and publishers. The publication of new books rose by 66 percent over the 2002-2007 period. Since 2000, the annual release of new albums has more than doubled, and worldwide feature film production since 2003 is up by more than 30 percent.
How markets for complementary goods (such as concerts, electronics, and communications infrastructure) have responded to file-sharing remains largely unexplored in academic research.

Author Abstract

The advent of file sharing has considerably weakened effective copyright protection. Today, more than 60% of internet traffic consists of consumers sharing music, movies, books and games. Yet, despite the popularity of the new technology, file sharing has not undermined the incentives of authors to produce new works. We argue that the effect of file sharing has been muted for three reasons. (1) The cannibalization of sales that is due to file sharing is more modest than many observers assume. Empirical work suggests that in music, no more than 20% of the recent decline in sales is due to sharing. (2) File sharing increases the demand for complements to protected works, raising, for instance, the demand for concerts and concert prices. The sale of more expensive complements has added to artists' incomes. (3) In many creative industries, monetary incentives play a reduced role in motivating authors to remain creative. Data on the supply of new works are consistent with the argument that file sharing did not discourage authors and publishers. Since the advent of file sharing, the production of music, books, and movies has increased sharply.