Professor’s research proves torrents increase sales

Turning the lights off makes the room brighter, adding salt to your food makes it taste sweeter and there is a direct link between an increase in torrents and an increase in sales revenue for the entertainment industry. They all sound ridiculous, but university research completed at North Carolina in the US of A seems to show a weird link. KitGuru switches IP addresses and heads off down the DarkNet to investigate.

Robert Hammond is an economist by trade, so when the assistant professor read about how much the torrent business is impacting the sale of records etc, he decided to investigate – hoping he could quantify the loss. Unfortunately, he was in for some long nights of data-double-checking and self-doubt, because the results seem illogical.

His ‘Profit leak?' paper is available in all its glory here, but here are the essentials.

Between May 2010 and January 2011, Professor Hammond pulled in as much data as possible about (a) the download statistics for torrents and (b) entertainment industry revenues.

Anyone who has studies statistics knows that ‘sensible samples of more than 1,000' will be telling you ‘something'. While it's possible to create huge data fudges when counting in singles or tens or even hundreds – an academic person who collates more than 1,000 comparable data samples – is getting somewhere close to a ‘fact'. Not all the way, by all means, but a result based on a big sample size helps remove the uncertainty factor.

Professor Hammond looked at 1,095 popular albums from 1,075 artists.

Specifically, he was interested in albums which were pre-released, without authorisation.

His conclusion seems very specific, “I isolate the causal effect of file sharing of an album on its sales by exploiting exogenous variation in how widely available the album was prior to its official release date. The findings suggest that file sharing of an album benefits its sales. I don’t find any evidence of a negative effect in any specification, using any instrument”.

Other studies have found that there can be a negative impact on sales – but they focused on the sale of single records, not albums.

Professor Hammond addresses this, “I focus on how file sharing of an individual album helps or hurts that album’s sales. The question of interest here is whether an individual artist should expect her sales to decline given wider pre-release availability of the album in file-sharing networks. I find that the answer is no”.

In total, around 150,000 torrent users were involved in the study and it is the first of its kind that suggests torrents act in the same way as other ‘free to market' tools used by the entertainment industry.

The traditional ‘free to market' methods include:-

• Radio play
• Music videos, for example on MTV
• Track give-aways, for example with iTunes tokens in a promotion from McDonalds

KitGuru says: The issue here will be control. For example, with narcotics that can easily be grown by individuals, the challenge for governments isn't so much ‘the health damage that will be done' (or no one would drink alcohol), rather it is a question of “So how can we collect tax on this if it is free?”. The entertainment industries (e.g. Sony) were happy to provide the tools for pirating music with tapes and music centres, because they were selling the tape players and tape. There is no control for online.

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