The Piracy Crusade: How the Music Industry's War on Sharing Destroys Markets and Erodes Civil Liberties

5. Bubbles and Storms: The Story behind the Numbers

94 C H A P T E R 5 Bubbles and Storms The Story behind the Numbers W   familiar with this story: Everything was going swimmingly for the music industry until Napster hit. Sales were on the rise, and the future looked brighter still. But since that fateful day in the summer of 1999 when P2P file sharing was unleashed on the world, music sales have plummeted and a once-vital industry has been reduced to a shadow of its former self. As Cary Sherman, RIAA chief executive, lamented in the New York Times in 2012, “music sales in the United States are less than half of what they were in 1999, when the file-sharing site Napster emerged, and [as a result] direct employment in the industry ha[s] fallen by more than half since then.”1 That P2P is squarely to blame for this turn of events is rarely questioned . The recording industry maintains that “widespread piracy is the biggest factor undermining the growth of the digital music business,” and continues to push for “cooperation from online intermediaries” such as ISPs and search engines (largely in the form of surveillance and censorship ) as a remedy, or at least a bulwark, against the tide of P2P and other “unauthorized channels” of music distribution.2 Stanley Liebowitz, an economics professor whose research on file sharing has been funded3 — and often cited4 —by the RIAA, even claims that “file-sharing has caused the entire enormous decline in record sales that has occurred over the last decade.”5 The news media tend to reproduce this frame of analysis without critique, routinely referencing “losses from file sharing” or speaking of sectors “avoiding what happened to the music industry” in their business coverage. If this narrative has succeeded in becoming “common knowledge,” a truism repeated in classrooms, boardrooms, and at cocktail parties around the world, it has been aided in large part by the Chart. This BUBBLES AND STORMS 95 graphical argument has appeared in various forms, in hundreds of blogs and publications, but each version tells essentially the same story: a market peak, followed by the introduction of P2P, followed by a long and steep decline. An excellent example is the version of the Chart provided by Liebowitz in his testimony on behalf of the plaintiffs in Arista v. Lime Group (fig. 3), which has been reproduced in the Hollywood Reporter6 and elsewhere. Liebowitz’s chart shows that music sales in the United States, measured in terms of albums sold per capita, did indeed reach a historical market peak shortly before the introduction of Napster, and have fallen significantly since then. He also asserts that music sales would have continued to climb linearly, without leveling off or falling, had P2P not undermined this growing consumer demand (a claim that seems to defy the basic tenets of logic). As he argued in Sony BMG v. Tenenbaum, another file sharing case in which he was retained as an expert witness by the major label plaintiffs, “the clearest and probably the most compelling evidence for file-sharing’s impact on sound recording sales is the timing of the rise of file-sharing with the decline in sound recording sales.”7 In other words, according to the music industry, the coincidence of these two events is the greatest proof that the former caused the latter. I maintain, however, that the Chart and its accompanying narrative, although they contain elements of truth, amount to little more than a convenient fiction, scapegoating music fans and media innovators for the Figure 3. Chart by Stanley Liebowitz depicting the purported effect of P2P on music sales. 96 CHAPTER 5 recording industry’s own strategic failures and ascribing responsibility to “pirates” and “piracy” for trends and events that are beyond anyone’s control. While the introduction of Napster does correlate conveniently with the beginning of a downward trend for music retail, so do a number of other factors, and furthermore, as any statistician can tell you, correlation doesn’t necessarily imply causation. As one statistics textbook puts it, “an observed correlation between two variables may be spurious. That is, it may be caused by the influence of a third variable.”8 In this chapter, I describe many other variables that have played a role in the transformation of the music economy over the past few decades, demonstrating that any part that P2P plays is relatively minimal. The larger...