A study by economist (and occasional Reg contributor) Will Page sheds new light on the relationship between streaming services and piracy. Artists who withhold from Spotify may suffer from increased piracy, he finds. Since Page works for Spotify, the words of the great prophet M'andee-rice Davies spring to mind - but it's worth a read nonetheless, as there’s a lot of new research here.
The report took seven months to prepare, long before this week's row about artists' royalties. It uses sales data, Spotify streaming and Bittorrent traffic to try and untangle the relationships. Page examined the Dutch music market, where Spotify has become a popular legal alternative to freetardery, and he examines the illegal consumption of popular recordings that artists have withheld from the service. In recent years names including The Black Keys, ColdPlay and the Adele have held back from offering their new recordings via the service, arguing that they'd rather have pounds in the pocket for an in-demand recording, rather than the pennies Spotify pays out. Page also looked at Italy, where licensed services are immature (Spotify has only just launched) and piracy is rampant.
The study concludes that legal services have a significant effect on unlicensed music downloads - which has been noted before - but hardcore pirates remain. The Swedish record industry saw a sharp decline in revenues from 2002 until 2008 when Spotify launched. A third of the Swedes over the age of 15 had downloaded pirate material in 2008, but by 2012 it was just over one in five. They’d got out of the habit. Since unlicensed TV and movie downloading increased during this period - when there were few legal alternatives - it's reasonable to conclude that legal services reduce piracy.
As with previous research, the numbers show a large "passive" population and a small number of hardcore, high volume pirates: 10 per cent of freetards download 52 per cent of the unlicensed files. Freetards also tend to go for the most popular files, which helped inform the next research: the correlation between withholding and piracy.
One Direction's album, which was available on Spotify on the day of its release, had a sales to piracy ration of 3.79 copies sold per Torrent download, while hold-out Rihanna sold 1.36 copies per Torrent. Page warns against inferring too much, because some artists allow Spotify to stream singles, while withholding albums. But he concludes "there is no evidence holdouts sell more". In contrast to Holland, where music piracy is something done by angry blokes who don't wash very often, unlicensed downloads in Italy are fairly mainstream. The music industry was slow to develop legal services there.
And it’s still pretty dozy about responding to demand. Page also finds a sharp, short-lived spike in piracy for specific acts after music festivals, an invitation for the industry to respond the demand with discounts and promotions. These are standard practice in other retail sectors - but when it comes to selling digital music, but you’ll look for them in vain.
The conclusion might not be surprising, as Spotify wants to reassure nervous labels and artists that their long-term interests benefit from a relationship with Spotify.
But Page concludes that policy makers should do more – it isn’t spelled out how – to nurture legitimate businesses from pirate sites. Those are corporations too, he reminds us, and they murder the market for legitimate sites – the ones who actually pay the artists.
“Copyright infringing websites are big businesses … 2/3 of piracy sites have advertising, and 1/3 also include credit card logons. This competition is real: consider how ad pricing is distorted by those unlicensed sites who offer more scale and no content costs.
At which point it would have been useful to study another variable – the effect of copyright infringement threats. The cumbersome French apparatus of Hadopi may not have suspended many freetards, but the mere threat created a huge surge of subscribers for Deezer, a Spotify-like streaming service. Britain’s bureaucrats are rigidly against implementing any kind of infringement penalties, no matter how gentle, but this looks increasingly hard to justify given how beneficial penalties are for the legitimate market.
You can read the report here. It’s commendable for its clarity, a quality not always associated with economists. ®