Within an increasingly sophisticated argument about digital piracy and the motivations for stealing intangible assets like music and film, there is a growing number of research projects focused on the question of software piracy and sales displacement. In other words, what does the data, rather than vested interests, have to say about the potential loss in revenue as a consequence of software piracy?
The most recent study by Joel Waldfogel at The Wharton School, University of Pennsylvania, concludes by quantifying the displacement effect at between -0.15% and -0.28%, depending on the artist, genre and importantly, the music interest (music sophisticate versus mainstreamer versus lifestyler versus influencer) of the individual in question. That is, an additional stolen track reduces paid consumption by between a third and and a sixth of a song.
The methodology included sampling university students and their music consumption. The incidence of illegal music was obviously high, but so was the legal version of the same track. Interestingly, the first insight of the study revealed a definite positive correlation between the percentage of students who owned a legal copy and those owning an illegal copy.
Of the 50 tracks used in the survey, for example, Coldplay’s Viva La Vida had the highest incidence of ownership, with 24.5% possessing a legal copy versus 17.5% who had the shared copy. Lifewise, the legal version of M.I.A’s Paper Planes was 17.7% versus 22.5% for the illegal option, and so on. Interestingly, the average valuation placed on Viva La Vida by the students was $2.22 – well above the iTunes retail price of $0.99 (the consumer has achieved a real, legitimate surplus in this instance). Correspondingly, the average value placed on Miley Cyrus’ 7 Things was just $0.36.
On this point, but beyond the scope of this paper, much needs to be discussed about current pricing structures of digital entertainment products and their real market valuations (as determined by consumers). There is definitely room to discuss the deadweight loss of certain music offerings which are simply being priced well beyond consumer expectations.
To conclude, we have an instance here where consumers purchase an average of 5.54 songs and steal an average of 6.71, while purchased songs have an average valuation of $2.76! Based on a displacement figure of -0.28, and in the context of no illegal music filesharing, the number of purchases would rise to 7.42 songs, not the 12.25 songs (5.54 + 6.71) in a simple one for one scenario.
The fascinating aspect of this research, and subsequent analysis, is the implications for all digital entertainment offerings. While we assess the implications for digital music sales, we must also be aware of the implications and learnings for filmed entertainment and associated distribution options.
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