Why trying to become a guitar hero is bad for the music industry but good for the economy

Early last year the Dutch government (the ministry for Economic Affairs, the Justice Department and the ministry for Education Culture and Science to be precise) commissioned a research report on the socio economical aspects of (peer 2 peer) file sharing. Last week the research consortium formed by TNO, SEO & IvIR published the final version of the report titled ‘Ups and Downs – the economic and cultural impact of file sharing for music, film and games’. This 141 page report looks into the economic and cultural consequences of file-sharing for the music, movie and games industries. The central conclusion of the report is that:

The research shows that the economic impact of file sharing on the Dutch economy is strongly positive when viewed from both short term and long term perspectives. As a result of file sharing consumers get access to a wide range of cultural products. This has a positive impact on the economy […] According to estimates the positive economic effects for consumers amount to 200 million euro per year. On the other side the maximum decrease in revenues for producers and publishers of sound recordings is 100 million euro per year. [page 3 of the report, translation mine, an official english translation here of the entire report is forthcoming]

It is refreshing to see a government sponsored report that recognizes that while one part of the entertainment industry (music) suffers some losses, these don’t necessarily outweigh other – positive – effects of file-sharing: According to the researchers, file-sharing gives access to a wide range of cultural goods and is often used to sample works that are bought later. Most file-sharers would have never bought all the content they downloaded, and having access to such a large media library has positive effects on the social well and economic position of downloaders and the society as a whole.

One of the most interesting observations in the report is that while revenues related to the sale of music are steadily declining, the overall amount of money spend by consumers on media for entertainment (ie music, videos and games) is relatively steady. It appears that money that is not spend on music is instead spend on video games. This can be seen as an indication that the real cause of the decline of revenues in the music industry is not primarily caused by file-sharing consumers, but by intra-industry competition: people simply spend their entertainment euros differently.

Instead of music CDs consumers buy Guitar Hero or Rock Band (plus extension) packs these days. This is one more reason why the recording industries’ push for stricter IP enforcement will probably not do them much good: It gives consumers little reason to not spend money on games and go back to spending it on music CDs. From the consuer perspective a €50 game is much better value for money than a CD that contains one or two really good tracks.

After the presentation of the report on Saturday in Groningen a Buma/Stemra representative called the report ‘scary’ [‘greizelig’ in Dutch]. One can only hope that his fear will transform itself into the insight that the industry will need to change if it wants to ensure it’s survival. But if the past is any indication the most likely reaction to this fear will be a counter study that comes to the conclusion that downloading is extremely bad for the economy and that we need much stricter IP-enformcement. In the meanwhile one third of the Dutch citizens will continue to download and go to concerts and buy CDs and buy DVD and go to the movies and fail at becoming Guitar Heros…

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