Felten’s Unified Theory

On his Freedom to Tinker blog, Princeton computer science professor Edward Felten presents his “Grand Unified Theory of File Sharing,” which attempts to explain discrepancies in various studies comparing file sharing activities with CD sales:

First, let’s review the three main results that have to be explained.
Survey-based studies, which ask people whether they use the Internet, whether (and how much) they use filesharing, and how many CDs they buy, find that people who fileshare buy fewer CDs.

The recent econometric study by Oberholzer and Strumpf, based on per-album time-series data on filesharing activity, CD sales, and other factors, found that filesharing has little or no effect on CD sales.

Eric Boorstin’s study found, controlling for differences in personal income, that there is a strong positive correlation between Internet usage and CD purchasing. This held true for all age groups, except the 15-24 group, for whom Internet usage correlates negatively with CD purchasing.

….The Grand Unified Theory explains the study results by breaking down the users of filesharing into two subpopulations, which I will call Free-riders and Samplers.

Free-riders are generally young. They have few if any moral qualms about filesharing, and they tend to assume that others feel the same way. They use filesharing to accumulate libraries of music, as an alternative to buying CDs.

Samplers are generally older and more risk-averse. They are highly engaged with cultural products of all sorts. They are morally conflicted about filesharing, and use it mostly to download songs that either aren’t for sale, or that they don’t value enough to pay for. They buy music that they really like, and filesharing causes them to find more music they like, so it tends to increase their CD purchases.

Now let’s look at how the theory explains the studies’ results.

In survey-based studies, Free-riders admit to filesharing and to buying fewer CDs because of their filesharing. But Samplers are reluctant to confess their filesharing to a stranger, being more risk-averse and more attuned to the dubious moral status of filesharing (not to mention its illegality). The result is that Free-riders are overcounted in survey-based studies, and Samplers are undercounted, so survey-based studies find that filesharing depresses CD sales.

The Oberholzer and Strumpf study measured the actual impact of both Free-riders and Samplers, and found that the lost sales caused by Free-riders are balanced by the increased sales due to Samplers.

The Boorstin study had different results for different age groups. His 15-24 age group was mostly Free-riders, who buy fewer CDs when they have Internet access, because their filesharing substitutes for purchases. His older age groups were mostly Samplers, who buy more CDs because of filesharing, and who are also, because of their high level of cultural engagement, predisposed to both Internet usage and CD purchasing. Therefore he found that young Internet users buy fewer CDs, while older Internet users buy a lot more.

As a result there is a balance between the Free-riders and the Samplers which, right now anyway, nets out to about zero in terms of file sharing’s effect on CD sales. Felten makes no claims for the theory’s ability to predict future behavior or trends however.

It seems to me the way to turn young “Free-riders” into buyers isn’t to sue them, but to offer them a service that isn’t free but feels like it – in other words, if file sharers are given the option of doing about exactly what they are doing now, but legally, for $10 a month tacked on to their monthly ISP bill, most of them will choose that option over time.