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File-Sharing Studies Explained

This is a mash-up of 20 studies (on file-sharing, specifically on SOPA and PIPA) covering a period of time between 2004 and 2012, so let us begin.

Drew Wilson of the Zeropaid has been busy compiling a thorough review on what’s been going on in the file-sharing world, starting with a study published in 2006 by the University of Chicago Law School. The study bears the name of “Impact of Legal Threats on Online Music Sharing Activity: An analysis of Music Industry Legal Actions”.

Here’s what the study aimed to establish:

“The focus now is on well-publicized legal threats and actions on a relatively small group of individuals to discourage overall music file sharing. To determine the resulting impact of these legal threats, we passively tracked online file-sharing behavior of over 2,000 individuals.”

The study categorized the process of file-sharing into four events:

1. Announcement of Intention to Pursue Legal Actions (June 26, 2003)
2. Lawsuits Filed against Alleged Music File Sharers (September 8, 2003)
3. Court Ruling against Revealing Identities of Sharers (December 19, 2003)
4. John Doe Lawsuits (January 21, 2004)

An interesting point of the study highlighted the following:

“Earlier works have also explicitly incorporated constraints on resources (either time or monetary) that dictate that an individual solve an allocation problem—how much (time) to devote to legal versus illegal activities. One key difference in the environment we study is that such constraints do not naturally exist with online file sharing—participation in legal and illegal activities can take place simultaneously and can occur at large quantitative levels. A music consumer can purchase or listen to digitized music on an authorized retailer’s Web site and, at the same time, participate in illegal file sharing of the same or other music.”

From this we understand that there were two categories of people at the time – those who obtained digital content from unauthorized sources and those who obtained the content via authorized sources. However, this is not the reality, as people have been known to download illegal content and obtain content through authorized sources at the same time. As for those who are not strangers to downloading, phrases like “try before you buy” or “if you like this stuff, buy it!” are common as they were/and still are present in the NFO of any given scene release. Therefore, people have been encouraged to purchase content for years.

The study continues by writing:

“We developed an automated process to passively track sharing information from over 2,000 sharers on Kazaa, the most popular P2P file-sharing network at the time (Graham 2003). The process operates in the background, taking snapshot observations of the file-sharing activities of P2P participants. As no direct contact was established with the monitored individuals, the process provided no reason for individuals to alter their file-sharing behavior.”

The study was conducted a long time ago, thus laws on wiretapping were a bit different back then.

“The formal data collection started on the week of March 3, 2003, over 3 months prior to the first legal event. For analysis purposes, we report on data collected until the week of March 1, 2004, a date some 5 weeks after the final legal event.”

And this is what the study’s found:

“In response to the RIAA’s initial announcement to pursue lawsuits, even though the sharers increased their file-sharing levels, they did lower their frequency of being online.
…
Even though the number of files shared exhibited an upward trend, this event actually represents a setback for RIAA in its legal strategy. While the frequency of being online did not exhibit a concomitant statistically significant increase in response to event 3, the frequency of usage levels did not drop.
…
While the preceding analysis suggests that a significant number of individuals altered their file-sharing behavior in response to legal threats from RIAA, the analysis does not indicate the magnitude of these shifts.”

The authors of the study did some further analysis and found that the litigation against file-sharing shares similarities to the so called “war on drugs” of the US government. The study notes: ““Drug enforcement agencies have targeted the supply side (large suppliers and large shipments—sharers) rather than the demand side (users—downloaders).”

Then it concludes:

“Our analysis indicates mixed success for RIAA’s strategy. On the positive side, before- and after-event comparisons suggest that over the course of the four events, the majority of substantial sharers decreased the number of files shared, typically by more than 90 percent. During this period, a majority of nonsubstantial sharers reduced sharing activity, typically to a third of their original levels. Further, a substantial number of sharers exhibited some risk mitigation behavior. On the other hand, some findings pose concern for the recording industry. We found an upsurge in the frequency of usage after event 3 from the sharers who continue to use the file-sharing network. These individuals are continuing to find value in accessing and using P2P networks.
…
While our results are consistent with the effect intended by RIAA, we feel it necessary to add the following caveat. It is possible that the observed reduction in file sharing on Kazaa may have been at least partially linked to a shift by sharers to other sharing networks. While we cannot rule this out, we do have information from another sharing network (WinMx)”

This means that while some have reduced their activities, others simply looked for alternatives – in this case when Fast Track was labeled as unsafe, the users chose to move to another network.

At the time RIAA’s purpose was to launch a few high-profile lawsuits in order to scare people off from ever downloading copyrighted material, but that never happened.

The article continues with a 2010 study called “Don’t blame the P2P file-sharers: the impact of free music downloads on the purchase of music CDs in Canada” that was published in the Journal of Evolutionary Economics. This study aims to measure the negative and positive effects of file-sharing and says ““on the whole, these two effects ‘cancel’ one another out, leading to no association between the number of P2P files downloaded and CD album sales.”

The authors further explain their intentions by stating:

“The primary objective of this paper is to analyze the effects of P2P file-sharing on pre-recorded music purchases in CD markets. The focus is, in particular, on whether such downloading and P2P file-sharing displaces (substitutes) or increases/stimulates music purchases.”

“We believe that the decision to engage in music downloading or P2P filesharing is not only a response to the price of music, but is also a response to the availability of musical works. For example, rare songs, music from bands that have not signed with a record label, or private recordings from life concerts may be available through P2P networks but may not be available for sale.”

Drew Wilson continues to make a point by sharing his personal experience with the internet.

“If it weren’t for the internet in general, I don’t think I would have even really discovered electronic music in general such as Trance, Hardcore and Drum N’ Bass to name a few genre’s. Now, not only have I been exposed to so many artists in these genre’s of music, I’m also producing music in similar genre’s as well. I don’t think I’d ever find artists like Temple City and Dan Vine in local HMV store as they’d be too busy selling music from Coldplay and The Headstones – music that just isn’t within my musical tastes at all. With the internet, I am able to discover huge volumes of different kinds of music that would not otherwise be available in my area of the world. That certainly plays in to the market creation hypothesis suggested in the study,” he wrote.

The study further explains how the authors collected their data:

“This paper adds to the discussion on the effects of music downloading and P2P file-sharing by using microeconomic survey data representative of the Canadian population and by extending the analysis to account for a wider range of relevant factors underlying music purchasing. This survey was designed by Birgitte Andersen with support from Industry Canada, and data collection was conducted by Decima Research in 2006.”

“Most previous studies on the relationship between P2P file-sharing and CD sales have utilized aggregated (e.g. macroeconomic) data. Thus, the analyzes using those data merely indirectly explain the statistical relationships on which micro-assumptions and conclusions are based.”

After making a parallel between file-sharing and the decline in music sales, the study concludes:

“When analyzing the effects of P2P file-sharing on pre-recorded music purchases in CD music markets, the focus was in particular on whether P2P filesharing displaces/substitutes or increases/stimulates music purchases. Based on our findings, we argue that P2P file-sharing behavior may not be bad news for the industry, because such activities create a range of new business opportunities.
…
Thus, this paper show that P2P file-sharing is not to blame for the decline in CD markets. Music markets are not simply undermined by free music downloading and P2P file-sharing, due to the sampling effect. However, technological innovation (spurring the way in whichmusic is now electronically delivered and consumed) pushes a need for the music industry to change its organization of such appropriation, in order to match the emerging new structures that are able to supply music at cheaper prices, especially for those who download freely from P2P file-sharing networks, because they perceive the album price as too expensive.”

With that said we understand that the music industry should adapt or change completely its business model. Blaming file-sharing for plummeting revenues without eligible proof and without taking into consideration other factors is just naive.

We continue with a 2011’s study entitled “How industry associations suppress threatening innovation: the case of the US recording industry” published in the journal Technology Analysis & Strategic Management.

The study explains its means by saying:

“This research examines how associations influence industry conditions in order to further member interests. We demonstrate that, when threatened by technological change, associations will attempt to shape industry conditions in order to suppress the adoption of threatening practices or policies. We propose that they do so by engaging in a multidimensional framework of influence directed towards public institutions. Their actions include agenda setting and influencing public policy to further member interests. Our framework is illustrated with actions taken in the USA by the Recording Industry Association of America (RIAA) in response to peer-to-peer file sharing technology and its use in the transfer of copyrighted music files.”

Referring to the RIAA and peer-to-peer file-sharing, the study says:

“The RIAA provides an excellent example of how an association strives to deal with industry change. We examine the RIAA’s actions in the USA.
…
It has always sought to preserve the intellectual property rights of the record industry. However, with changes in existing technology and the introduction of a wide range of new technologies such as peer-to-peer networking, this traditional concern has become a priority issue (RIAA 2009).

Peer-to-peer technology allows users to bypass Internet servers in order to access files held by another computer. The key innovation that facilitates the file sharing practices the RIAA opposes is the MPEG-1 Audio Layer 3 (MP3) file.
…
As a response to the continued threat of peer-to-peer technology, the RIAA implemented a number of actions that serve as an effective illustration of our proposed framework of association action in response to threats. As we will illustrate below, the RIAA’s actions suggest that specific strategies are implemented in the public, judicial and policy contexts. Moreover, these strategies are dynamic and simultaneous.”

United States’ efforts to fight innovation have extended far beyond US borders, and testimony of these efforts are the Anti-Counterfeiting Trade Agreement (ACTA), the Trans-Pacific Partnership (TPP), the Comprehensive Economic and Trade Agreement (CETA), and the USTR Special 301 Report.

The study further analyzes RIAA’s education campaigns, alliances with the Department of Justice (DOJ), litigation activities and heavy lobbying with lawmakers. At the end of the paper, the authors comment:

“The extent to which associations can successfully protect the interests of their members through political action in the long run is another potential area for future inquiry. While there have been decreases in the number of illegal downloads since the implementation of the RIAA’s strategy, record sales continue to decline (Bhattacharjee et al. 2007). Moreover, research on the topic has shown that technological change is difficult, if not impossible to resist. Firms that have attempted to block threatening innovations have usually failed in such endeavours (Hargadon and Douglas 2001; Suarez and Utterback 1995). Moreover, research has shown that such external threats can be transformational, despite the resistance of incumbent firms (Leblebici et al. 1991). Whether associations can be more successful remains to be seen.”

Bottom line is that change within the industry is inevitable. Surprisingly, the paper notes that both music sales and illegal downloading have been in decline. However, the problem remains with RIAA’s stubbornness to adapt to changes, a fact that is affecting society as a whole.

A 2006 study named “Hollywood versus the Internet: the media and entertainment industries in a digital and networked economy” was published by the Journal of Economic Geography. It scopes MPAA’s efforts to preserve its ownership and transform the internet into an inefficient client to user system.

“A key area of debate concerns the scope for strategic adaptation in oligopolies; and in particular, the extent to which such large and otherwise successful firms ignore or marginalize important shifts in the marketplace.”

The study analyzes the intricate relationship between the oligopoly that is the major movie studios (Disney, Fox, Paramount, Sony Pictures, Universal and Warner Brothers) and file-sharing slash technology. While the economics of the movie studios have shifted, the remaining constant is that the studios remain the same in the industry. Furthermore, the author explains that the paper is based on 150 interviews from studio executives and related firms. He further explains that the file-sharing, which has become more and more popular over the years, has introduced a decentralized nature of dissemination of content.
“The rapid adoption of P2P technology by consumers worldwide, but particularly in Europe and North America, has imbued file sharing with a powerful sense of legitimacy and normality. The P2P networks have also improved access to the informational raw materials necessary for creative thought and expression, facilitating new forms of appropriation, tinkering and modification among consumers and existing producers (at least those with the requisite skills and hardware to undertake such activities). There are signs of a simple yet powerful desire—among the growing ranks of the ‘digital literati’—to have Internet access to our cultural and historical record, and to be able to build on this resource and recombine it into new forms (Lasica, 2005).”

The author highlights concepts like free and open source software as well as the ideals expressed via Creative Commons licenses.

Moreover, the paper noted the response of the MPAA by stating:
“The discourse promoted by the media oligopoly, in general, is rooted in the language of piracy, physical property and theft (Vaidhyanathan, 2001). In their view, every free download represents a lost transaction and in turn, theft of expensive creative property.”

Drew makes a good point by stating that file-sharing has never meant the death of the industries, while the paper highlights the following:

“In practice, the economic relationship between P2P file sharing and industry revenues is still extremely unclear (see Condry, 2004; Ganley, 2004; Oberholzer and Strumpf, 2004). The well-documented decline in record sales from 2000–2003 roughly coincided with the rise of P2P file-sharing technology, but was also likely shaped by a broader global economic slowdown and competition from other forms of entertainment, such as DVDs, video games and ring tones (Freedman, 2003). Meanwhile, there are no signs (as yet) to indicate that the presence of file sharing is leading to a direct and quantifiable reduction in revenues in the film industry.”

In addition, the author also proposes a solution for the file-sharing issue by stating:

“P2P file sharing can actually be harnessed into a legalized and secure form. This is made possible by what is known as ‘digital rights management’ (DRM) software technology, which encodes computer files into a secure format, with a set of usage rules (stating when, where and how the file can be accessed) and a price determined by the copyright owner. The file can then be freely shared over the Internet, or even offline via recordable media, but remains locked until a usage license is purchased. DRM, however, arguably needs to balance the interests of creators, consumers and corporations. DRM protection should not simply attempt to thwart piracy and constrain the consumption of digital commodities in an authoritarian fashion, without regard for the delicate balance which has long existed in a physical and analogue world of distribution (and which, in theory, underpins the traditional doctrine of copyright law—see Lessig, 2002). Rather, ‘thin’ forms of DRM (with deliberate imperfections) could help to imprint fair uses and derivative uses by consumers and creators into software code, which increasingly regulates our digital lives and activities (Lessig, 1999).”

Keep in mind that this was proposed in 2006, when DRM was seen as a solution for everything. However, since then DRM has been hacked, cracked and bypassed many times.

“The studios have publicly acknowledged the need for legal alternatives to P2P filesharing, where consumers can purchase and download films in a digital commodity form, in a flexible and affordable manner, for viewing on a computer or a television. Behind this rhetoric of consumer choice, however, the studios are attempting to mend the open and decentralized nature of the Internet and reshape it into a ‘walled garden’, where there is total control over content (with the help of DRM technology). The studios have used their power in the industry to impose what may be termed a ‘protectionist design’ (Utterback, 1996)—that is, a business model that seeks to protect the structure of the industry, rather than exploit the disruptive power of a new technology,” the author notes.

That has been the truth for many years, and little has changed since 2006. Nowadays, the internet is bombarded with site-blocking legislations, while other websites (like Megaupload) are being shut down despite their efforts to stay within the legal framework. The author points out the studios’ refusal to embrace change by writing:

“The strategic response of the studio oligopoly to the Internet is directly shaped and constrained by the existing windowed structure of film distribution, which is dominated by a physical commodity form: sales of the DVD format. The studios continue to resist any form of engagement with legal P2P file sharing (despite the availability of evidence indicating its myriad benefits) owing to potential ramifications for DVD sales and a loss of control in the distribution process. The studios have basically favoured a centralized (server-client) rental model over a decentralized (P2P) sale-based model, which is more efficient and robust, because it makes no change to the existing structure of release windows and hence does not threaten the billion revenue stream currently generated by sales of DVDs in the US each year.”

“The collision between Hollywood (a mature oligopoly overseen by six studios) and the Internet (a decentralized P2P architecture) exhibits these general theoretical characteristics. The rise of P2P file sharing has been problematic both for the studios and their corporate parents because it portends a radically  different mode of economic reproduction for intellectual property, built around secure P2P file sharing, and in turn, a loss of oligopolistic control. These firms have attacked the P2P networks under the discursive (and seemingly unassailable) banner of piracy, property rights and theft. In particular, they have argued that P2P file sharing is morally wrong and economically reprehensible, and poses a hazard to future investments in creativity. In practice, however, the campaign against file sharing is in many ways merely a subplot to a much larger and contentious drama, centred on how we create, fund, use, own and share creative works in a digital and networked economy,” he concludes.

However, despite everyone’s efforts to compel the entertainment companies to adopt a progressive approach to file-sharing, the corporations continued to fight this system instead of harnessing its true power.

Drew Wilson’s compilation of studies continues with several other studies analyzed and dissected. Feel free to read them all as they objectively explain file-sharing and the entertainment industry’s efforts to curb this tendency.

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