Danaher, Smith, Telang and Chen (2012)
|Danaher, Smith, Telang and Chen (2012)|
|Title:||The effect of graduated response anti-piracy laws on music sales: evidence from an event study in France|
|Author(s):||Danaher, B., Smith, M., Telang, R., Chen, S.|
|Citation:||Danaher, B., Smith, M. D., Telang, R., & Chen, S. (2014). The Effect of Graduated Response Anti‐Piracy Laws on Music Sales: Evidence from an Event Study in France. The Journal of Industrial Economics, 62(3), 541-553.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|Linked by:||Danaher and Smith (2013)|
|About the Data|
|Data Description:|| The main data set for this study is weekly iTunes sales units for a number of European countries including France. The data extend from July 2008 to May 2011, and observe separately both track unit sales and album unit sales. The data were obtained directly from the four major music labels — EMI, Sony, Universal, and Warner — and aggregated to reflect total iTunes sales for the majors.
The study looks at the five European countries (other than France) with the highest iTunes sales levels as our control group for France, under the theory that overall market trends would have the most similar impact on countries with closer sales levels. This study observes weekly iTunes sales units for France, the UK, Italy, Spain, Germany, and Belgium. This yields 918 country-by-week observations of total iTunes sales units, broken down into albums and tracks.
To measure awareness of the new HADOPI law, the study collected Google Trends data on Google searches (from France) for the search term “HADOPI.”13 Google Trends reports the “relative search index” for a search term in a given country, meaning that for each week we observe the number of searches for that term relative to the average number of all searches in that country across each week in the date range. So, for example, if there were an average of 20,000 searches per week in our date range for the term HADOPI, then in a week where there were 100,000 searches, the Google Trends index would report “5.0” for that week. Thus, while we do not know the actual volume of searches, we know when awareness of HADOPI peaked as measured by Google searches, and the relative height of that peak. This can serve as a measure of national awareness of the law.
The authors thank four major record labels for providing data to support this research. They also state the while this research was undertaken independently, the IFPI has compensated Danaher for his time to present the results of this study to the IFPI and to produce a non-technical version of this paper for their internal use.
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||Yes|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
Digital piracy is seen as a significant problem for the creative industries. Still, while there have been many academic studies showing that piracy hurts sales, there have been far fewer studies analyzing the effectiveness of anti-piracy measures in reversing this effect. This study attempts to address this question by analyzing how the HADOPI “three strikes” law in France affected digital music sales on the iTunes music store. To do this, we obtained a panel of iTunes sales data from the four major music labels (Universal Music, Warner Music, EMI Music and Sony Music) across a broad set of countries. We then applied a difference-in-difference approach, using sales trends in a control group of European countries to simulate the counterfactual of what music sales in France would have been if HADOPI had not been passed. Our results suggest that increased consumer awareness of HADOPI caused iTunes song and album sales to increase by 22.5% and 25% respectively relative to changes in the control group. In terms of robustness, we find that these sales changes are similar for each of the four major music labels, suggesting that our results are not peculiar to any particular label. We also find that the observed sales increase is much larger in genres that, prior to HADOPI, experienced high piracy levels (e.g., Rap and Hip Hop) than for less pirated genres (e.g., Christian music, classical, and jazz). This strengthens the causal interpretation of our results since if HADOPI is causing pirates to become legitimate purchases, its effects should be stronger for heavily pirated music than it is for other music genres.
Main Results of the Study
The mains results of this study are:
- The authors state that the results suggest that the HADOPI law (and the education and media attention surrounding it) increased iTunes single sales by 90,000 units per week on average. Assuming an average song price of €1 per song, this equates to an increase of €4.7 million ($6.3 million) in annual iTunes track revenues.
- Results suggest that HADOPI causally increased French digital albums sales by an average of 11,200 units per week. Assuming an average of €8.5 per album, this equates to an increase of €4.9 million ($6.7 million) in annual iTunes album sales due to HADOPI.
- Together, our estimates suggest that HADOPI increased annual iTunes revenues (tracks plus albums) by about €9.6 million ($13 million) per year for the four majors combined.
- Under the assumption that the four majors make up 70% of the industry, if sales for the remaining 30% of artists experienced the same change in sales as we observe for the major labels, then the impact of HADOPI was to increase overall digital iTunes sales by €13.8 million ($18.6 million) per year for the entire music industry.
- The effect of HADOPI was larger for more heavily pirated genres like Rap and smaller for less pirated genres like Christian music or Jazz, which is what one would expect if the increase in sales were causally related to HADOPI.
- Increased consumer awareness of HADOPI caused iTunes song and album sales to increase by 22.5% and 25% respectively relative to changes in the control group.
- The study occurs before anyone received a third notice (i.e. before any cases have been referred to the criminal court), and the increase in sales is observed even before the law’s final passage. While this may seem irrational, it is consistent with the idea that increasing the salience of the law, the illegality of piracy, and the potential penalties is sufficient to change user behavior.
Policy Implications as Stated By Author
"For policy-makers, our results may have important implications in other countries that are considering passing similar graduated response laws, as well as in France where a number of parties oppose the continued existence of the law. Likewise, our results may inform industry practice in some countries, like the United States, that have seen the voluntary agreement between the music industry and Internet Service Providers on the application of a graduated response system."
"Additionally, other industries may benefit from HADOPI. For example, to the degree that the motion picture and publishing industries suffer losses caused by filesharing, HADOPI may positively impact revenues in those industries. The study does not quantify the entire effect of HADOPI on producer surplus in the media industries, but indicates that for one industry (music) in one channel (iTunes), the law appears to have had a large and statistically significant effect."
Coverage of Study
|Level of aggregation:||Digital Sales in 6 European Music Markets|
|Period of material under study:||2008-2011|