Did file-sharing cause recording industry collapse? Economists say no

There's no question that recorded music sales have declined over the last decade—down from over $26 billion in 2000 to under $16 billion last year. But the relentless focus on P2P sharing ignores other factors, these scholars contend. The most important of these is the gradual weakening of the consumer economy over the last decade, particularly over the last two years of global recession. And it's going to get worse.

"Downward pressure on leisure expenditure is likely to continue to increase due to rising costs of living and unemployment and drastic rises in the costs of (public) services," says the report.

Having less money for entertainment has played a huge role in the decline of items like CDs. A 2004 US Consumer Expenditure Survey showed that even spending on CDs by people who had no computer (and were therefore unlikely to download and use BitTorrent) dropped by over 40 percent from 1999 through 2004.

"Household budgets for entertainment are relatively inelastic as competition for spending on culture and entertainment increases and there are shifts in household expenditure as well," the LSE study notes.
And if file-sharing wasn't the major cause of the revenue downturn, stepping up copyright enforcement is unlikely to return the industry to those heady days.

And while it is true that many consumers have turned to illegal file sharing in bad economic times, a 2007 Journal of Political Economy study found that most downloaders would not buy that content, even if they couldn't share it.

"Downloads have an effect on sales that is statistically indistinguishable from zero," the authors flatly concluded then. "Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period."

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