Proﬁt Leak? Pre-Release File Sharing and the Music Industry
It is intuitive that the potential for buyers to obtain a good without remuneration can harmthe producer of the good. I test if this holds empirically in the music industry using data from anexclusive ﬁle-sharing website that allows users to share music ﬁles using the BitTorrent protocol.These are the most reliable ﬁle-sharing data available because they are from a private tracker,which is an invitation-only ﬁle-sharing network. The number of downloads is endogenous due tounobserved album quality, leading me to use an instrumental variable approach. In particular,I exploit exogenous variation in the availability of sound recordings in ﬁle-sharing networks toisolate the causal eﬀect of ﬁle sharing of an album on its sales. The results strongly suggest thatan album beneﬁts from increased ﬁle sharing: an album that became available in ﬁle-sharingnetworks one month earlier would sell 60 additional units. This increase is sales is small relativeto other factors that have been found to aﬀect album sales. I conclude with an investigationof the distributional eﬀects of ﬁle sharing on sales and ﬁnd that ﬁle sharing beneﬁts moreestablished and popular artists but not newer and smaller artists. These results are consistentwith recent trends in the music industry.
: L82, K42, C26
: Sound recordings, intellectual property rights, distributional eﬀects of ﬁle sharing,instrument exogeneity