LSE economists: file sharing isn't killing music industry, but copyright enforcement will

Creative Destruction and Copyright Protection, a paper by the London School of Economics' Bart Cammaerts and Bingchun Meng, is an eye-opening look at the economics of file-sharing and music. The authors argue that an overall decline in consumer entertainment spending is to blame for the music industry's downturn, supporting their assertion with (for example), research showing that entertainment spending declined by 40 percent in households that didn't own computers (who probably weren't downloading!) over the period of overall decline for the industry.

Their conclusion is that copyright enforcement won't bring back consumer spending on music — but it will strangle new business models built on file-sharing, robbing the next generation of musicians without paying the current generation. The authors propose several business models, including allowing ISPs to buy unlimited, technology-neutral licenses on behalf of their users.

The authors of the study acknowledge that these alternative models are not going to impress SONY and EMI. "Compared to the value of the mainstream music market, dominated by the 'big four', these are relatively marginal activities," they observe.

But they may become less marginal very soon. With world mobile data traffic set to explode by a factor of 26 by 2015, and with most people in the Middle East, Sub-Saharan Africa, and South/Southeast Asia expected to link to the mobile 'Net before they get electricity, file sharing could be poised for a second great leap forward, whether Big Content approves of it or not.

These millions of new Netizens are not going to have the money to buy digital music files. They're going to use BitTorrent. That will put more and more pressure on governments to decide whether they want to criminalize a huge portion of humanity, or encourage the market to adapt to the new "ephemeral" models described by this study and others.

Did file-sharing cause recording industry collapse? Economists say no