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The Effect of Graduated Response Anti-Piracy Laws on Music Sales:
Evidence from an Event Study in France
Brett Danaher
‡
Wellesley College, Department of Economics Michael D. Smith
†
Carnegie Mellon University, Heinz College Rahul Telang
†
Carnegie Mellon University, Heinz CollegeSiwen Chen
‡
Wellesley College, Department of Economics
This Version: January 2012Acknowledgements: The authors thank four major record labels for generously providing data to
support this research. Smith and Telang acknowledge generous support from Carnegie Mellon‘s
iLab.
‡
Department of Economics, Wellesley College, Wellesley, MA, 02481
†
School of Information Systems and Management, Heinz College, Carnegie Mellon University,Pittsburgh, PA, 15213.
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The Effect of Graduated Response Anti-Piracy Laws on Music Sales:
Evidence from an Event Study in FranceA
BSTRACT
The digital piracy is a significant problem for the creative industries. Still, while there have beenmany academic studies showing that piracy hurts sales, there have been far fewer studiesanalyzing the effectiveness of anti-piracy measures in reversing this effect. This study attemptsto address this gap in the literature by analyzi
ng how the HADOPI ―three strikes‖ law in France
affected digital music sales on the iTunes music store.To do this, we obtained a panel of iTunes sales data for the four major music labels (UniversalMusic, Warner Music, EMI Music and Sony Music) across a broad set of countries. We thenapplied a difference-in-difference approach, using sales trends in a control group of Europeancountries to simulate the counterfactual of what music sales in France would have been if HADOPI had not been passed. Our results suggest that increased consumer awareness of HADOPI caused iTunes song and album sales to increase by 22.5% and 25% respectivelyrelative to changes in the control group.In terms of robustness, we find that these sales changes are similar for each of the four majormusic labels, suggesting that our results are not driven by one particular label. We also find thatthe observed sales increase is much larger in genres that, prior to HADOPI, experienced highpiracy levels (e.g., Rap and Hip Hop) than for less pirated genres (e.g., Christian music, classical,and jazz). This tends to strengthen the causal interpretation of our results given that if HADOPIis causing pirates to become legitimate purchases, its effects should be stronger for heavilypirated music.
Keywords:
Piracy, regulation, digital distribution, music industry, natural experiment.
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I.
Introduction:
Since the rise of Napster, ―piracy killed the radio star‖ could be the global slogan of the music industry.
Global recorded music sales and licensing have plunged from nearly $27 billion US dollars in 2000 to$15 billion in 2010,
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with some countries witnessing a coinciding decrease in investment in developinglocal talent (IFPI 2010). An increasingly popular topic in the economics and the information systemsliteratures has been how much of this sales decrease is due to displacement by Internet piracy. Whileestimates vary, the vast majority of studies find that piracy has caused a significant decrease in musicsales (see for example, Liebowitz (2006), Rob and Waldfogel (2004), Zentner (2006), Hui and Png(2003), OECD (2009)). However, to date there have been far fewer academic studies analyzing whetheranti-piracy measures can mitigate some of the sales loss from piracy
—
and none that we are aware of that are directly related to governmental intervention. Our goal in this paper is to provide such evidence,by evaluating the effectiveness of anti-piracy government intervention in France.Since the rise of Napster in 2000, media companies have pleaded with governments worldwide toconsider and implement newer, more creative anti-piracy laws and strategies to mitigate the impact of piracy on sales. In May of 2009 the French Parliament passed an anti-piracy law known as HADOPI, orthe Creation and Internet Law. The purpose of this law is to
―
promote the distribution and protection of
creative works on the Internet.‖
The law empowers the HADOPI administrative authority to sendwarnings to identified infringers and transfer the case to the court in cases of repeat infringement.HADOPI acts on the basis of information submitted by rightholders and has the power to monitor onlineinfringement and verify information with ISPs. When a rightsholder submits a notice of infringement, it isverified by HADOPI and matched against information held by the relevant ISP. Valid infringementtriggers a notice of infringement sent by email from HADOPI to the account holder. When the sameaccount is identified again as being used for infringement within a period of six months of the first
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Source: IFPI. This includes both digital and physical sales of recorded music.
