Harvard's Got Game

New study reveals: The music industry's full of shit.

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Kill Bill Vol. 2
It must be all the mud in their eyes. That's what's keeping the major labels from seeing how bogus it is to blame downloading for the slumping record sales of recent years. Since last summer, they've brought more than a thousand lawsuits against file-sharers -- a crafty "deterrent" that's made downloading more popular than ever. (Over 4.5 million people did it in the first two months of this year alone, a 34 percent increase over the same period in 2002, reports the internet monitoring firm BigChampagne.) According to major-label logic, that should spell further doom for an industry that's been in recession ever since Korn stopped being cool.

Far from it. Over the first quarter of 2004, CD sales are up close to 15 percent. And this follows a strong fourth quarter in 2003, in which gains over the previous year's sales were posted week after week. Two artists -- R&B star Usher and jazz-lite chanteuse Norah Jones -- have released new albums that sold more than a million copies in their first week. The last time anybody did that was in 2001, when N'Sync's Celebrity premiered. This, despite the fact Norah is the most downloaded female artist in history. If the internet hurts sales so much, what's the deal with Norah's numbers?

The nation's top geeks have the answer: A new report from Harvard Business School argues that downloading has virtually no effect on CD sales, and what little impact it does have most likely boosts the numbers of the hottest artists. What makes this study different from countless others proffered by the labels is that it's based on actual observation of downloaders rather than on surveys, which are ripe for lying and other minor hindrances to accuracy. In their study, the report's authors -- the excellently named Felix Oberholzer and Koleman Strumpf -- observed 1.75 million downloads over a period of 17 weeks, from September to December of 2002.

The results, even to those who don't subscribe to scholarly journals, are eye-opening. "Even in the most pessimistic specification," they write, "five thousand downloads are needed to displace a single album sale." According to this math, downloading would have cost the industry only 2 million album sales from 2000 to 2002, a period in which it dropped close to 140 million overall. Moreover, when the top 25 percent of the best-selling albums are considered, downloading directly correlates with increased CD sales.

How can this be? "While downloads occur on a vast scale," the authors explain, "most users are likely individuals who would not have bought the album even in the absence of file-sharing." So even though the impact of downloading on record sales is statistically insignificant, the practice does increase music consumption by luring fresh ears.

In addition, downloaders frequently check other file-sharers' music selections and critique various artists in file-server chat rooms. And with labels lowering prices -- already Universal has slashed its retail price, ostensibly to compete with the internet -- file-sharing may cause people to buy CDs who might not have done so when they cost upwards of 20 bucks a pop. (The Harvard boys note that DVDs and computer software are widely pirated as well, yet those industries continue to grow exponentially.)

All this, and still the major labels are sucking wind. Already this year, Arista and Dreamworks Records have folded, and EMI recently announced that it was cutting its roster by 20 percent. But similar to the dot-com bust of a few years back, this doesn't reflect an industry imperiled as much as it does an industry reevaluating its business model after a boom period in which sales were inflated. Similar slumps occurred in the late '70s and early '80s, but the biz survived. Sales soared through the '90s, as folks replaced their tape and vinyl collections with CDs, making an eventual ebb in revenues inevitable. And that doesn't even take into consideration today's economy, increased competition from DVDs and video games, and a simple decline in the number of major-label releases.

But downloading, far from being the cause of the major labels' woes, could be one of the solutions. It's time the industry acknowledged as much, while there's still time to save face -- not to mention its butt.

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