Tuesday, March 03, 2009

Dutch government study on economic & cultural effects of P2P

An English translation of a Dutch government study, Economic and cultural effects of file sharing on music, film and games has just been published. It is one of the few empirical studies done in this area and as such is highly recommended. From the management summary of the report (apologies for the formatting):
"The main aim of this study is to identify the short- and long-term economic and cultural

effects of file sharing on music, films and games. File sharing is the catch-all term for

uploading and downloading. The short-term implications examined include the direct

costs and benefits to society at large. In order to determine the long-term impact, we

analyse changes in the industry’s business models as well as in cultural diversity and

the accessibility of content.

The study draws on existing sources of information to describe the structure and

operation of the film, games and music industries and discusses the most important

changes in their business models. Digitisation has played a central role in this process.

The trends and developments are subsequently analysed from a legal perspective, with a

primary focus on copyright aspects. The empirical reality of file sharing is described

using data collected during interviews with heavy file sharers as well as data from a

representative survey of 1,500 internet users in the Netherlands. Other sources include

interviews with people working in one of the three entertainment industries and, where

none were available, with industry representatives...

The research shows that the economic implications of file sharing for welfare in the
Netherlands are strongly positive in the short and long terms. File sharing provides
consumers with access to a broad range of cultural products, which typically raises
welfare. Conversely, the practice is believed to result in a decline in sales of CDs,
DVDs and games.

Determining the impact of unlicensed downloading on the purchase of paid content is a
tricky exercise. In the music industry, one track downloaded does not imply one less
track sold. Many music sharers would not buy as many CDs at today’s prices if
downloading were no longer possible, either because they cannot afford it or because
they have other budgetary priorities: they lack purchasing power. At the same time, we see that many people download tracks to get to know new music (sampling) and
eventually buy the CD if they like it. To the extent that file sharing does result in a decline in sales (substitution), it usually entails a transfer of welfare from producers to consumers. With estimated welfare gains accruing to consumers totalling around €200 million a year in the Netherlands, music producers and publishers suffer turnover losses of at most €100 million a year...

The impact of digitisation on the various sectors of the entertainment industry is
substantial. Traditional business models used by distributors in each of these sectors and
most other actors upstream in the value chain (producers and creators) are based on the
controlled access to the products created, in this case films, games and music
(recordings). Copyright gives them control over the use and marketing of their products,
for which they may charge consumers. The practice of file sharing, however, is making
it increasingly difficult for them to maintain control over their works, with the risk of
eroding their commercial foundations...

The music industry finds itself up against a shrinking market for its products and the
ubiquitous problem of file sharing. It may well be that at least part of turnover loss
directly reflects this sharing of digital music files, via P2P networks among other routes.
The industry’s defensive strategy has not succeeded in stemming the swelling tide of
music sharing and has failed to come up with an early answer to today’s new digital
reality. And so it has seen other players, such as Apple, claim key market positions in
marketing and delivering digital music files...

A different picture emerges for the film industry, which is still enjoying growth in a
number of markets: cinema visits and DVD sales. By contrast, DVD rentals have
slumped. This favourable trend compared with the record industry may reflect the fact
that film sharing has not taken off on as large a scale as music sharing. If this is indeed
the reason, increasing broadband penetration might eventually also cause this industry
to record less growth or even to shrink. The urgency the music industry feels to reinvent
its business model might then also take hold in the film industry. Films are also at a
disadvantage in that it is not in the nature of film consumption for many viewers to
quickly want to see the same film again. Free downloading is therefore more likely to
result in substitution here than in the music business...

The games industry is a different story yet again. This business is showing exuberant
growth, particularly at the console games and related hardware end, and the spectre of
file sharing looms much less large in console games than in PC games, where turnover
is now flat. The specific platform-restricted hardware-software-content marriage makes
the official game release so attractive – compared with a music CD – that this industry
might well be able to better prevent or sidestep the file sharing that besets the music
business. The hardware-software-content combine also gives large producers and
distributors in the industry more scope to ensure profitable operations. These
opportunities are sorely lacking in the music and film industries. Another advantage of
the games industry is that concept design and product innovation are much more
embedded in the gaming culture than in the music and film industries, in particular now
that it is increasingly capitalising on the opportunities offered by the Web."

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