Downloading Is Correlated With CD Purchases

from the correlation-is-not-causation dept

There's a new study out (via Michael Geist) about the relationship between peer-to-peer downloading and CD purchases in Canada. The authors found a positive relationship between downloading and CD purchasing. That is, those who downloaded more music also tended to purchase more CDs. It's important to keep in mind that correlation does not prove causation. In particular, I suspect that much of what we're observing here is simply the fact that people have varying levels of interest in music, and those who are more interested in music are likely to both download more songs and purchase more CDs. So these results by no means prove that peer-to-peer file-sharing isn't hurting the recording industry. On the other hand, it certainly belies the recording industry's simplistic claim that no one will buy their music if it's available for free on peer-to-peer sites. Clearly, there are a lot of music fans in Canada who have access to peer-to-peer networks and choose to pay money for CDs anyway. That might be because they want the extras that come with the physical CD, because they feel good about supporting their favorite band, or because they expect the audio files on the CD to be higher quality than the music they find online. Whatever the reasons, the recording industry should be figuring out how to capitalize on them, by coming up with new products that offer perks you can't get from a peer-to-peer network.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Tommy, Nov 5th, 2007 @ 12:10pm

    Come on guys

    Tim is trying to inform you with information. Instead of replying with the fact that you read it first. Reply with something intelligent to say. With that said:

    It amazes me the record companies have not figured the true problem. If they chase consumers away then who is left to buy their CD. I honestly refuse to buy any hard copy of musical media since the start of RIAA's crusade. I will buy some music online if i really want it. But I have Sirius Satellite Radio, which eliminates all my need for hard media. I realize they still get their dues.

    If I could I would like to starve them to death. They are just another pompous committee looking to line their pockets.

    -Hey guys how can we make money without doing much work. Lets sue all these people who are downloading songs! We can even have a great excuse. We can tell everyone we are doing it for starving artists!-

    -Months later:
    Oh shit, they can fight back WTF?!?!?!?!?! We need to be serious!-

    -Several failed cases later:
    We got monies! Lets spend it on getting new attorneys who can sue a 5 year old and not flinch.-

    and so on.

    Can't it just end?

     

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  2.  
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    Retorik, Nov 5th, 2007 @ 12:12pm

    Suprise, Surprise!

     

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  3.  
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    Joel Coehoorn, Nov 5th, 2007 @ 12:12pm

    A given consumer only has so many dollars available to spend on music. They may spend more or less from time to time depending on what's available or other factors, but in general your budget will only take so much.

    Take the 80Gb iPod: at an average of 5Mb and $1 per song it would cost more than $15,000 to fill it up. And yet 80Gb iPods have sold very well. There's obviously a demand to be able to carry around music in this quantity. Unfortunately, very few consumers can afford it, even if you spread out the expense over a few years.

    What this shows is that if record companies lower prices, consumers will probably not reduce their spending. Instead, they'll likely increase the number of units purchased. In other words, dropping prices would not reduce revenue. It's also important to note that because digital music has a negligible marginal cost it won't reduce profit either.

    This represents a huge opportunity for record companies. Lowering prices would not reduce profits, but it could significantly increase them. Even though individual consumers won't spend any more money in the new price model than they did in the past, record companies can now reach many new consumers.

    The new consumers can come from many groups: Poorer groups, perhaps in developing countries, who before didn't have the budget to even really enter the market. People who didn't see music as good value for the dollar when they could just turn on the radio or other alternative. Older people who don't want to buy a new copy of an old album and are still listening to their old tapes or LPs. People disgusted with the cost of CDs. People who used to use file-sharing networks or gray-market services like AllOfMp3. These are all people who before would have given the record company zero revenue who now may become good paying customers.

     

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  4.  
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    Retorik, Nov 5th, 2007 @ 12:12pm

    Well I be dammed....

     

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  5.  
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    Steven, Nov 5th, 2007 @ 12:14pm

    Problem with CD's

    There is one reason that CD sales are dropping lower then ever. It is simply that nobody uses CD players any more. It is very rare that somebody at school or on the subway has a CD player. Everyone uses MP3's, so they rather buy MP3's rather then a useless CD.

    Its really only cars and stereo's were buying a CD would male sense

     

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  6.  
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    Steve, Nov 5th, 2007 @ 12:46pm

    The Industry

    The core problem for the industry isn't so much that downloading itself is resposible for poor sales, it's that the industry is dealing with an informed consumer now. Before you'd blindly buy an album based on what's heard on the radio or TV, now you can hear the whole thing before you plunk down your hard earned cash and that makes the industry crazy because with the sheer amount of garbage being produced these days, an informed consumer is the LAST thing the recording industry wants.

     

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  7.  
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    Not Steven, Nov 5th, 2007 @ 12:51pm

    Re: Problem with CD's

    I buy CDs despite the fact that I only access them once or twice... I rip everything I buy as both lossless and mp3 formats for use on the computer and the family's various iPods...

    I won't settle for anything less than CD quality when spending money due to the fact that I listen via nearfield studio monitors while at the computer and notice a difference between lossless/cd-audio and mp3s...

     

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  8.  
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    Anonymous Coward, Nov 5th, 2007 @ 12:52pm

    Re: The Industry

    Amen to that! :-)

     

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  9.  
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    Overcast, Nov 5th, 2007 @ 12:53pm

    You know..

    If there wasn't 'Free' Music on the radio - they'd be hard pressed to sell any CD.

    How many CD's has anyone bought without hearing some of it first? In my whole life - maybe one.

     

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  10.  
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    Dan, Nov 5th, 2007 @ 12:56pm

    it is called marketing

    Vinyl is warmer sounding than digital.
    Downloads should be priced at $0.25/each.
    Now that I have your attention...
    Peer to peer and digital downloads represent a segment of the total market for music purchases. LP's still are being made. That should tell you something. CD's are still purchased. There are reasons that are obvious. Actually owning the hard copy at full resolution with the art work was important when records first came out. This concept is still important. People like having something in their hands with detailed information I expect.

    These disks can still be put on a portable player in another format. Unfortunately, the download industry seems to think that $1/song is a reasonable value? Not sure... when I can buy the hard copy with the art and full resolution recording to do with it what I want for personal use for much less than the $1/song.

    Some artists and marketers have figured it out. Take U2 "How to Dismantle an Atomic Bomb". Four versions were released. Online, a budget disk, a disk with more artwork, and a disk with a book. Each should have been priced fairly and were (except the download!). That is called marketing. Knowing your buyer. Who can afford what and what they want.

    Let's face it some people are not going to BUY anything. They are not necessarily trying to break the law, but sometimes they cannot afford it. Peer to peer downloads spread the word, the art, and the music. I have plenty of reasons to PURCHASE THE MUSIC as presented above. Why don't the record companies provide more reasons to purchase music (more art, unique covers, etc)? Simple marketing.

    Unfortunately, artists have seeming little say. Lawyers and business idiots seems to have more say.

     

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  11.  
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    shano (profile), Nov 5th, 2007 @ 1:19pm

    yeah

    As long as buying a full album of music on CD in a nice package is comparable in price to downloading the album, I'll buy the CD.

    Now amazon offering full albums of Non-DRM music for $7 or $8, I may start downloading. :)

     

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  12.  
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    lizard, Nov 5th, 2007 @ 1:29pm

    and what about thinking green?

    Shouldn't we (in the interest of our planet) be actively and aggressively pursuing alternative methods of music purchases, which do not involve the plastic and chemicals and paper booklets and all that junk?

    I realize we're all still conditioned to expect that we get goodies with our CDs, but at this point in time CDs are only barely up the media evolutionary scale from vinyl. We are so beyond that, but we (and the record industry) are frantically trying to hold on to a technology whose day has come and gone.

    Even this article uses "CD Purchases" to mean "sales of music". I say, we disconnect this concept from the outdated format it's currently associated with.

    But this would require a forward-thinking industry. So -- how else are consumers supposed to help drive this market into the current century? I guess we could keep downloading till we make our point ...

     

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  13.  
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    Cixelsid, Nov 5th, 2007 @ 1:38pm

    Ack

    How can I get my comments to be threaded by default?

     

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  14.  
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    The Man, Nov 5th, 2007 @ 1:44pm

    Re: and what about thinking green?

    Now CD's cause global warming?

    Now I have one of those alternative revenue streams Mike always rants about. I am going to sell CD's with lots of extra packaging. Wrap them with lots of plastic and foam and real mink fur. I will give the music away for free. I will make a killing from all the people who are smart enough to see through this environmental nazi BS and by the extra packaging just because some want to be hippie says they can't.

     

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  15.  
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    Bryan, Nov 5th, 2007 @ 1:45pm

    Re: Problem with CD's

    "Its really only cars and stereo's were buying a CD would male sense"

    And even those markets are coming equipped with MP3 audio jacks, and iPod adapters built in as a standard feature. People love new toys!

     

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  16.  
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    Joel Coehoorn, Nov 5th, 2007 @ 1:46pm

    Another band offering a free download

    http://www.switchfoot.com/

    They invite you to download the song for free, and give any money you would have spent (or time, if you'd rather) to Habitat for Humanity.

     

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  17.  
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    Dan, Nov 5th, 2007 @ 1:50pm

    what about that EMP?

    That EMP (electromagnetic pulse) from the nukes will take care of the notion that mp3's are the best way to store music. Magnetic media, whether hard drives, cassettes, or otherwise, all eventually fail. Ones and zeros read by laser from those primitive, green house gas producing, pitted hard disk CD's will survive.... as long as they don't melt!

     

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  18.  
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    Cestan, Nov 5th, 2007 @ 2:13pm

    Lacking a reason

    In all honesty, I think you're lacking a reason, though it isn't one that the 'Industry' as represented by the RIAA would care very much for.
    Namely discovering new artists, I tend to buy cd's I find very good, but all my recent purchases have been of very unknown/indie label bands, bands that without the p2p networks I'd have no idea of existing, such as Satanicpornocultshop.
    One thing you have to keep in mind is that the nigh on infinite amounts of music available will also mean that the buying of cd's is more fragmented and spread over a greater number of bands/labels then before, and that includes indie labels or bands that somehow sell their own cd's.
    P2P can really aid bands with their sales, though the mainstream not so good music will suffer for it, as people's budgets haven't magically become larger, whilst what they listen has broadened immensly.

     

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  19.  
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    What a heel, Nov 5th, 2007 @ 2:43pm

    Re: what about that EMP?

    And if the EMP goes off, what do we play the CDs on, Einstein? CD players use electricity last time I checked.

     

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  20.  
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    Anonymous Coward, Nov 5th, 2007 @ 2:56pm

    the only thing mp3s are good for is listening to through earbud speakers. play them through a nice amp and some 3 way's with 12" woofers and they sound crap. If i could download wav files or other lossless format then I'd happily pay for it. But I won't pay for an inferior format that i'll only listen too with all the background noise of the subway.

     

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  21.  
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    Trerro, Nov 5th, 2007 @ 3:18pm

    It's true that indie bands can benefit greatly from p2p, while major artists tend not to... but major artists tend to earn enough from concert tickets that the only reason they even want the CD out (from a money perspective) is to get more fans at the concerts. In the long run, all that happens is an environment is created where all bands can benefit, and the RIAA is simply obsolete. I fail to see a problem here. :) It's an inevitable change for the better, which lawsuits may delay, but can't stop.

    As for the budget thing, as several have pointed out, the amount you're willing to spend on music depends on how much you like music in general combined with how much disposable income you have. So barring a major advance in civilization that raises the overall amount of disposable income, the music industry, collectively, is going to be making roughly the same amount each year (adjusted for inflation, of course.)

    As the middleman becomes obsolete thanks to the internet, however, all of that money eventually goes straight to musicians, and none to lawyer shark pits. Again, I really don't see a problem here. So the fans get exactly what they want, the musicians are more successful, and lawyers need to go find a job that actually benefits society. There's really no downside here. :)

     

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  22.  
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    nonuser, Nov 5th, 2007 @ 4:31pm

    people who shoplift...

    probably spend more on clothing than the average person, because they are more likely to be attuned to stylish clothing. So the conclusion for storeowners is...?

     

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  23.  
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    Mike (profile), Nov 5th, 2007 @ 4:33pm

    Re: Ack

    Cixelsid:

    How can I get my comments to be threaded by default?

    http://www.techdirt.com/preferences.php

     

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  24.  
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    Mike (profile), Nov 5th, 2007 @ 4:36pm

    Re: people who shoplift...

    probably spend more on clothing than the average person, because they are more likely to be attuned to stylish clothing. So the conclusion for storeowners is...?

    Must we go through the ridiculous "infringement is not theft" argument again?

    However, the main difference here is that there is actual statistical evidence that people who download buy more music. If you had actual evidence of that being the case for shoplifted clothing then we could discuss those findings. However, I think you'd find it's not true at all -- and it's not hard for anyone who bothers to think (rather than just spew the industry line) to understand why there's a difference.

    If you understand the difference between infinite goods and scarce goods it all makes sense...

     

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  25.  
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    nonuser, Nov 5th, 2007 @ 5:31pm

    Re: Re: people who shoplift...

    Heh I was trolling a bit, quite expecting someone to reply with the "infringement not stealing" line. Didn't think it would be you, Mike.

    You're right, I really have no idea if shoplifters buy more than average or not. But the markets for recorded music and certain kinds of designer clothing are somewhat similar - demand is downward sloping as usual, i.e. varies inversely with price. Supply is mostly sunken cost (initial product creation, including IP acquisition costs, plus advertising/promotion); gross margins are extremely high. Since the manufacturers need to recover their fixed costs, and also cover the costs of some other acts or products which didn't work out, they can't afford to give away their "hits" to people who are both willing and able to buy but opt for the five finger discount.

     

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  26.  
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    Paul`, Nov 5th, 2007 @ 6:26pm

    Its true

    I know for me thats true. I recently spend upward of $200 on Frank Zappa CD's after downloading a few albums.

     

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  27.  
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    Peter Beckett, Nov 5th, 2007 @ 7:56pm

    yeah

    As a Grateful Dead collector I'm part of an online community that is a wicked collective stickler for maintaining lineage and quality in lossless music files. The industry has done a horrible job of educating the consumer of the quality difference betwen full resolution 16/44.1 and lossy compression. There are many compelling reasons to purchase cds, most mentioned here. The poster who said that downloads should be $0.25 is exactly right. Talk to me when they offer $0.99 lossless downloads.
    Interesting how the TV industry is pushing more towards higher resolution HD technology while the music/audio industry in moving more towards lower resolution lossy "takedown" products.
    My local CD store recently went out of business. At the sale I spent almost $200. The first thing I did when I got home was delete several of the albums worth of sketchy mp3s from P2P. Good for U2, Matisyahu, Television, Pretenders, the Clash, Rhino, BMG...

     

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  28.  
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    John, Nov 6th, 2007 @ 5:25am

    CDs

    I download tons of music but still buy the same amount of CDs as before, last night I threw down $18 for a CD I'd already downloaded months ago...thing is, I would buy a lot more CDs if the prices were reasonable! You can't stop p2p anyway, private p2p is now here and it's 100% legal. You can't stop someone from sharing their harddrive with their friends. Check out http://www.gigatribe.com for one of the better private p2p apps out there.

     

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  29.  
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    Wizard Prang, Nov 6th, 2007 @ 7:29am

    Here's my take

    Over the past year I have purchased perhaps a dozen tracks from Amazon, Wal-Mart and iTunes. That's $1/month or $12/year.

    If they were 50c/song I suspect that I would purchase 5+ songs/month = $30/year.

    At AoMP3 prices - a quarter per song, or so - it gets so cheap that piracy and file-sharing are no longer viable options for most of us - it is cheaper to purchase than have to look for the song online. At that level songs effectively become disposable and the cost of a purchase does not even register. How much would I spend? Don't know, but I suspect that it would easily pass $50/yr and probably top $100/year.

    If they get rid of DRM. But that is another story.

    The Content business are learning all the wrong lessons here - they should not view AoMP3 and its ilk as a challenge to their business model. They should view them as its future.

     

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  30.  
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    Benefacio, Nov 7th, 2007 @ 3:27am

    Now here is some bias

    In a post on a previous topic Mike wondered why anyone would consider the writers at Techdirt biased. Tim Lee's article clearly shows it, at least for Tim and at least for me. The report mentioned clearly states at the beginning of its summary that, on the whole, there is NO relationship, positive or negative, between file sharing and cd purchases in Canada.

    I will admit that this particular report can be a bit confusing because the very next paragraph of the same summary page says that there is a strong positive influence of file sharing for the Canadian P2P file sharing subpopulation. When I dig deeper and look at the actual results as stated in the report I get a 'No shit, Sherlock' moment.

    What the report seems to have found is that for people that are willing to buy cds downloading files is more likely to increase their cd purchases. In addition, for those artists whose music is not available through traditional outlets, file sharing can increase sales of their cds.

    However, for Canadians that rarely buy cds in the first place, file sharing reduces their urge to buy more cds. The report also shows no net effect of file sharing for Canadians that just want one or two songs from a cd.

    So what the reports shows is a numbers game where the positive effect of one subpopulation is offset by the negative effect of another, resulting in zero over all effect. Tim almost got it right when stating that people who are interested in supporting artists by buying cds are more likely to buy cds if they are exposed to new music via file sharing. Unfortunately, it seems to me his bias got in the way.

     

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  31.  
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    Anonymous Coward, Nov 7th, 2007 @ 9:30am

    Wow, people who download music, like music.

    People who like music, buy music...

    People pay you for these insights?

     

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  32.  
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    Boris, Nov 8th, 2007 @ 7:18pm

    Since when do canadians have cds? Where have I been all these years? WTF?!

     

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