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Ram D. Gopal Sudip Bhattacharjee
University of Connecticut
G. Lawrence Sanders
State University of New York at Buffalo
Do Artists Beneﬁt from Online Music Sharing?*
Several recent high proﬁle legal cases have created a renewed focus on digitized products, intellectual property, and related copyright and pricing issues in an increasingly Internet-enabled world (Clark 1999; Bravin 2000; Federal Trade Commission 2000; Crombie 2001; Gomes 2001; Gomes and Mathews 2001). Downloading, sampling, and sharing digital goods by Internet users who do not own these items in other forms has become a major issue. For the music recording and distribution industry, for example, this problem has turned quite acute.1 A Pew (2000) study found that about 14% of Internet users downloaded digitized music ﬁles from the Internet for free. Clark (2000) projected that by 2005, illegal online music sharing would result in annual sales losses of $3.1 billion. This indicated a signiﬁcant disruption in the business model of the music industry. The technology that facilitates such online sampling of digital audio and other digital goods is improving rapidly. Various software packages make it increas* This article has been signiﬁcantly enhanced by referee comments and suggestions from the editor. Contact the corresponding author, Ram D. Gopal, at email@example.com. 1. “MP3,” the most popular format for compressed music, is one of the most searched-for terms on the Internet (http://www.ifpi.org). (Journal of Business, 2006, vol. 79, no. 3) 2006 by The University of Chicago. All rights reserved. 0021-9398/2006/7903-0016$10.00 1503
We present a model of online music sharing that incorporates economic and technological incentives to sample, purchase, and pirate. Contrary to conventional wisdom, we ﬁnd that lowering the cost of sampling music will propel more consumers to purchase music online as the total cost of evaluation and acquisition decreases. Attempts to prevent sampling will be counterproductive in the long run. Sharing technologies erode the superstar phenomenon widely prevalent in the music business. Extensive empirical investigations, based on surveys and Billboard ranking charts, lend support to the economic model and validate the key results.
Journal of Business
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