Blame Canada

Our neighbors to the north are once again making sense.

An extensive new study counters what the Canadian Recording Industry Association (as well as our own RIAA) have claimed – that there is a positive correlation between peer-to-peer downloading and CD purchasing.

Two professors from the University of London, with Industry Canada and Decima Research, surveyed over 2,000 Canadians on their music downloading and purchasing habits in perhaps the first empirical study to employ representative microeconomic data. I don’t know what that means, but that’s what they claim.

Anyway, these were their two big findings:

First, when assessing the P2P downloading population, there was "a strong positive relationship between P2P file sharing and CD purchasing. That is, among Canadians actually engaged in it, P2P file sharing increases CD purchases." Translation: it is estimated that one additional P2P download per month increases music purchasing by 0.44 CDs per year.

Second, the aggregate view of the entire Canadian population shows there is no direct relationship between P2P file sharing and CD purchases in Canada. "The analysis of the entire Canadian population does not uncover either a positive or negative relationship between the number of files downloaded from P2P networks and CDs purchased. That is, we find no direct evidence to suggest that the net effect of P2P file sharing on CD purchasing is either positive or negative for Canada as a whole."

Note that this study was government commissioned independent research. The findings are backed by an earlier study by Canadian Heritage that also countered the claim that P2P downloads negatively effect the industry.

The study also found there was no statistically significant relationship between P2P downloads and digital download purchases from stores such as iTunes, meaning P2P downloads neither increase nor decrease the likelihood of such purchases. Also, CD prices have little impact on CD purchases, though there was some indirect evidence of pricing being factored into those that P2P file share. People who buy large numbers of DVDs, videogames, cinema and concert tickets also buy a higher number of CDs, and that household income has no statistically significant effect on CD or digital download purchases

The study itself is a dry read for the non-economist, but the message is that the industry has at worst benefited from P2P activity and that there has been no adverse effect. And still, this further undermines the major labels attempt to find a scapegoat for their sagging sales. As more and more bands leave the big labels (see Radiohead and Madonna’s recent moves) or get exclusive distribution (Paul McCartney and Joni Mitchell through Starbuck’s or the Eagles at Wal*Mart), the companies are losing their power as fast as their revenue.

And the most pathetic fallout over the crumbling of the record industry? “I find myself, when I’m signing a record deal now, asking, ‘Can this sell as a ringtone?’” said Steve Rifkind, president of SRC, a label affiliated with Universal. Let that soak in.