Riddle Me This: If Pirates Buy More, Why Are Music Sales Plunging?

The following guest post comes from NPD Group analyst Russ Crupnick, who feels the whole ‘pirates buy more’ argument is deeply misleading.  

In fact, Crupnick’s research says the difference between the buying habits of P2P users and non-P2P users is negligible.    

I often think you ought to have a license to publish data, especially these days, when misinterpreted statistics easily make their way to the blogosphere, and thus become truth. This has been a real problem in the music space where perception quickly becomes reality. Those so-called realities often prove wrong.

An extract has been going around this week from a soon-to-be-released Columbia University’s American Assembly report stating that music Peer-to-Peer (P2P) users have larger music collections than non-users, and that they spend more on music. The authors make the suggestion that criminalization is worthy of criticism and ask whether the damage done by file sharing is overblown.

This, of course, gets extended to the conclusion that P2P file sharing must be good for music, as it promotes collecting and purchasing.  This is ground that the industry has been over, again and again.  I hoped that the subject died with Limewire, but it hasn’t.  My friends at Digital Music News suggested I share a few thoughts with you, which I’ve decided to do in the form of this blog.

Let’s examine some facts:

1) P2P music downloaders do indeed buy more music than non-users.  We’ve known that for about 10 years.

It’s a dumb, illogical and irritating argument.  Per capita spend on music in the US is $26 among the Internet population ages 13 and older.  That includes CDs, paid downloads, and subscriptions. The average P2P downloader spends $42 on these categories of music.  No contest — P2P users spend more.  Guess what — people who follow artists on Facebook spend more than that, as do people who use Twitter; and those who subscribe to Rhapsody or Pandora spend a whole lot more than any of these groups.

2) Non-users of P2P include the 50% of Americans that don’t buy any music.

It includes the baby boomers who don’t buy as much, anymore. It includes the young kids who don’t have money or credit cards, but may get music with gift cards that Mom buys for them.   It’s just a bad basis for comparison.

3) P2P music downloaders are younger.

Males tend to file share more than women. They have a higher level of engagement with music, so comparing them to non-buyers, grandmas, and kids whose access to music is via YouTube is careless.

4) This is not a measure of causality.

Nowhere do these data speak to whether P2P leads to music discovery and purchasing or whether it is a substitute for buying.  It does not mean that P2P users would spend more if P2P did not exist.

The average P2P user spent $90 per capita on music in 2004.  Now they spend $42 (CDs, downloads, subscriptions). This was during the same period when the number of files illegally downloaded per capita was rising. 

So much for promotion effects. Celebrating P2P users for their contribution belies the fact that the paid component of the music that they acquire, aka their acquisition mix, is 50% less than the average music consumer. Yes, that’s half the average.

There is a lot of research on causality — some good, some not. It has been a while since NPD did a study on this topic, but our research said the net impact was negative.

If file sharing was so beneficial, then why haven’t music sales increased between 1998 and now?

5) Using spend numbers in this fashion promotes the idea that P2P music file sharing is OK or even beneficial.

It is not; it is stealing and an illegal form of distribution.

What if we made a truly legitimate comparison, and eliminated the grandmas and young kids without credit cards from the research?  That’s fair since nearly 60% of P2P music downloaders are between the ages of 18-35.  Since we’re talking P2P users who buy, let’s also look at non-P2P users who buy.

Per Capita Spend: Annual 2011: NPD
CategoryNon-P2P User

18-35

Music Buyer

P2P User

18-35

Music Buyer

Physical CDs$24$23
Paid Downloads$29$35
Subscription Fees$2$5
Subtotal$54$62
Merchandise$20$52
Concert Tickets$63$91
Grand Total$191$267

The truth is that P2P users spend about the same on the core music categories as non-users, on this basis. P2P users spend a bit more on digital downloads and subscriptions but it would be a tough argument that there is much of a difference. Six dollars extra on tracks is hardly half an album.

There is a significant difference in spend on merchandise and concert tickets, where P2P users spend nearly twice as much as non-users.  Are we saying that P2P file sharing promotes T-shirt sales, or show attendance? Of course not; that would be silly. What it says is that the people who download music illegally are generally more engaged in music, so they go to shows and they wear their favorite artists on their shirts. I have news for you: they would be doing this if P2P never existed.

I thank my friends at Digital Music News for prompting this look at the topic. Statistics, like music, are becoming more ubiquitous, as are the opinions about them.  Data is good, but interpretation is where the game is won or lost.

Data source: Each year for the last decade NPD has done a comprehensive study on the state of music in the US. This Annual Music Study is the source for the statistics. The study is well regarded and is used by the major players in the music industry, whose names you would easily recognize.

22 Responses

  1. jesús

    $54 vs $62 (only the subtotal, mind you). About the same individually totally transforms after multiplying that number by the millions(?) of buyers.

    Also, what does pirates buying more has to do with music sales plunging or raising?

  2. Ehren

    Isn’t also pretty obvious that there is an ever-growing variety of ways to spend our entertainment dollars? In 1998, people were sort of buying VHS tapes, buying some video games, and probably had relatively cheap cable tv to compete with music. Now, people probably buy a new expensive device a year, have at least one expensive internet connection (home, mobile hotspot, smartphone), they buy apps, the video game industry is approaching the size of the movie industry, people have large dvd libraries, they subsribe to an expensive cable package in addition to netflix and itunes and hulu. There are probably a bunch of things I’m even missing. Music isn’t just cometing with music — it’s competing with every other kind of entertainment. A person on the subway used to just be reading a book or listening to a walkman. Now, they’re either playing a game or doing work or chatting with friends or watching a movie or any number of other things. Music has a much smaller piece of the pie.

  3. Myles na Gopaleen

    Was the question contained in the title of this article “…Why are music sales plunging?” rhetorical because it really wasn’t answered by the information contained in the article.

    The article does do a good job of explaining how the pie is getting split up but soesn’t say much about why the pie is getting smaller.

  4. Jason

    Russ

    This argument is really circular and flimsy sorry to say. I’m not even sure what your point is. You first admit P2P users are buying more than show data that on selected stuff it’s the same. But when you look at the Grand Total in your own chart anyone can see that there are drastic differences in Merch and Concerts, for example. Which means P2P users buy more by a HUGE margin.

    We should sue these people? Huh? They buy more on iTunes according to other data but WAY more elsewhere according to your own data. The food chain is changed recordings aren’t worth the digital file they’re file swapped on.

  5. GG

    Maybe music sales are plunging because there’s so many terrible, terrible bands/artists out there it’s hard to people to find ones that resonate for more than 2 songs.

    There’s probably more fantastic musicians/bands out now that there have ever been. Unfortunately, with everything so cheap and easy, there’s also ten times as many mediocre people taking up space.

      • steveh

        But this implies another riddle:- if music today is so bad why do so many people even bother getting it for free on torrents etc.?

        • guest

          I guess you are just making yourself dumb to make a point. Clearly no new music is pirated in any meaningful way. No indie artist ever lost a dime to any “pirate”.

          Its all about getting hold of music you probably owned at one stage or another and therefore have already paid for in some cases more than once.

          • steveh

            “Clearly no new music is pirated in any meaningful way. No indie artist ever lost a dime to any “pirate”.”

            You are making a wild and unsupported claim here.

            Would you care to offer some concrete proof for your contention?

          • Big Swifty

            In reply to your implied riddle above, the comment at the start of this thread mentioned that their is plenty of good music out there also. It is sometimes hard to find in the vast pile of dreck.

            There is a long list of psychological reasons why certain people decide to download pirated music instead of paying for it. I am sure you have heard all of the music piracy rationalizations.

            IMO some people can’t differentiate between good music and bad, some prefer quantity over quality so they torrent large quantities of music instead of paying for it.

            Maybe the ratio of the amount a consumer who illegaly downloads to the amount they buy is directly related to the ratio of the total amount of bad music to good music (with psychological disfunctions thrown in as a variable on the consumer side of the equation).

            Maybe a statistician out there could construct an equation with the data so the accountants at major labels could use it to determine their marketing budgets.

  6. jw

    I’d love to see 2001 non-p2p using 18-35 average music buyer statistics, compared to the 2011 numbers.

    Agree that this article says nothing about why music sales are plunging. A la carte downloads, lack of concentrations of attention (mtv, radio, etc), oversaturated market, unprecendented amount of marketing static, an unprecedented acceleration in the rate of consumption, devaluing digital media on a per-transaction basis, & the technological decomoditizing of recorded music all play MAJOR roles in the transformation of the landscape, & among many other factors.

    To reduce the sales slope to some sort of moral decline is not only lazy, it’s irresponsible.

    • Visitor

      Jw, a world class, piracy-apologist extraordinaire.

      You should post on Techdirt and give the reigning freetard king a run for his money.

      • jw

        I’m pro-recorded music industry, & I’m aslso pro-consumer. You obviously operate under the assumption that you can only be one or the other. I’m trying to bridge that gap.

        I never thought that the transition to selling digital sales was the future of the business, it was conceived in an era when music was still a comodity & bandwidth didn’t do justice to the medium. Besides that, it was bound to deliver diminishing returns because of the transition to a la carte purchasing. But it was a necessary transition, however messy. Even if it never truly made sense, & the price never actually reflected the value of the music, even if consumers were getting ripped off, overpaying for an inferior format that would be obsolete in just a few years, something had to bridge the gap until services like Spotify started showing up. There are arguments to be made about all the ways digital music could’ve been handled much differently, & in fact better, during the transition, but that’s all in the past & doesn’t matter now that streaming is here.

        Still, it’s those mishandlings that have, in part, created a need for downloading. I don’t think that recorded music ought to be free, least of all for my own benefit. And I don’t think recorded music should be a loss leader to concert revenue. I pay $10/mo to Spotify & hundreds more per year for vinyl & I have no qualms about it whatsoever. But I do think that downloading is necessary for creating momentum for bands. Or, at least, it has been in the absense of streaming. Of course there are going to be some lost sales. But in the environment that we’re now in, where music has taken a backseat to texting & apps & movies & video games, & where there is so much marketing static to break through, you can’t understate the importantance of momentum & you have to look at the net return. Not compared to 2001 revenue, but compared to what revenue would be now without the momentum that download has created over the last decade, with all of the countless disruptions factored in. Ignoring the disruptions & focusing on single sales won or lost is the biggest mistake you could possibly make.

        I’m not championing piracy, not by any stretch of the imagination. I’m just excited that it’s being made obsolete by great services like Spotify, Rdio, & Deezer, & I’m frustrated that people still have faith in as stupid a concept as digital music ownership, & are fighting tooth & nail to protect it just like the industry fought tooth & nail to protect cds. If anything, my argument is that piracy just doesn’t matter at this point, though it’s important to understand how it was necessary during the short digital ownership era in order to understand the new economy where time is the commodity, rather than recordings.

        I hope that clears it up for you.

        • Anonie

          YES! The carriage industry still fuming about those damn cars…

  7. Truth

    Honestly,

    Let’s face the fact that music is just not as special as it was years ago. There is really nothing new under the sun, musically. Music is everywhere you go all the time. It just is. It has become a background instead of a cutting edge dangerous exciting new phenomena like the early days of Rock and Roll or the eveolution of Rap from the late 80’s until the turn of the century. Everything now has a similar sound and eveything sounds a bit played out. The music video had it’s day in the sun and now that’s faded out too. Sorry to be the bearer of bad news, but’s it’s not just the filesharers who are spending less on music…it’s everyone.

  8. Jimbob

    Why does the music industry and entertainment industry in general fail to understand that the economy is in terrible shape. Why has the industry failed to see that the decline started as the economy slid in 2000? It is extremely frustrating that this variable is NEVER included. It is always assumed that music consumers have the same amount of disposable income that they did 10 or 20 years ago. THEY DON’T. This current recession even made things worse.

    Maybe for music to recover we need more economic equality. Just a contextual thought.

  9. mdti

    I beleive it is the whole concept of “purchasing” and “owning” that is becoming something of the past with digital media in general (including games).

    Little story: my little cousin (10 y old) has the latest Carly Rae Jepsen on her mom’s i-pad. But, for her birthday last week I bought her the CD. Her Dad told me he wasn’t sure it was a good idea because she already has it on ipad. She was so happy, and immediately put it in her gettho blaster and her friends came to dance with her they were all going crazy.

    It was like she had it for the first time eventhough she already had the digital itune copy. The digital copy did not count. She thanked me again today for the CD. It surely implies much more than only the music or owning a product, i think it goes much further than that in that situation i described. Sure, those kids in my family a very well educated about arts and quality….

    So I guess it is matter of experience, and wether those children have experienced how it feels to go buy/receive a record, or if they consume merely virtual product which i would tend to think is the only experience of the very large majority of kids today.

  10. Guest

    Here´s the thing:

    We all already bought our Donald Fagen, Pink Floyd, Beatles, ELO , Stones etc etc etc.

    No one is making anythign worth buying, or if they are I certainly am not finding it.

    So why the surprise that no one is buying anything??

  11. Steve Meyer

    Music sales are plunging?

    Tell that to Adele, Taylor Swift, Lady GaGa, Lil Wayne, One Direction, Coldplay, Justin Bieber, and more.

    Great albums filled with GREAT SONGS sell.

    Mediocre music sells tracks instead.

    If the industry wants to increase sales, they need to focus on signing, developing, and promoting REAL artists that have the power to sell albums because the conmtent is that good

  12. Kris Kail

    The problem here is that the industry seems to think there’s still value in music alone. Since the dawn of music if you wanted to hear a song you never actually paid for the song itself, you paid for the way in which you heard it. Paying for a seat at the theater where the music was being performed, paying for a record so you could listen to it at home, paying for a cassette to listen to it in the car or on your Walkman, or paying for a CD to listen to it at home, on the go, or on your computer where you could rip the songs for a complete digital collection.

    Now that CDs are going the way-side thanks to widespread use of MP3 players, portable digital audio devices, and smartphones we have people eager to listen to music who now have two ways of doing it: buying the music legally through a service such as iTunes, or downloading the music illegally through a P2P or BitTorrent client.

    The problem with legal services is that they often times restrict how you use the songs through DRM. You can only burn it to X amount of CDs, you can only use it on X amount of computers, and it’ll only work with our specific portable digital audio devices/smartphones. Unlike a CD, which will work on any computer/CD player and is bound to sound good, you now have a compressed song that you can only use in the way the service lets you use it. But you only spent $9.99 on the album instead of $11! Glad to know we’re saving money.

    With BitTorrent/P2P clients you can easily download a high-quality MP3 of any song you want, including very hard to find songs/albums that the legal services don’t offer, for free without any of the hassle. Not only that, but there are exclusive clubs where they make available song/album downloads of the highest quality possible, something the legal services don’t see worth doing because people are fine with supposed CD quality (even though iTunes uses a quality standard below that of CDs).

    What this “epidemic” that’s been going on for the past decade means is that the big labels need to wake up and find a way to keep up with the times. They need to find a way to put music out and not make it un-piratable, because if it can be heard it can be copied the facts are the facts, but they need to include something you CAN’T download. That’s why collector’s sets are so popular – you can’t download a t-shirt.