At the blog of Michael Geist, I saw that the back-and-forth about research on P2P's impact on music purchases is still going on (as if it was ever going to stop).

Birgitte Andersen, co-author of a study on P2P funded by Industry Canada, posted reactions to criticism by University of Texas economics professor Stan Liebowitz.

In the comments section to that post came commentary from Zeljka Kozul-Wright, an economist with the United Nations Conference on Trade and Development, who referred to an upcoming paper she is co-authoring titled "Creative Destruction in the Music Industry and the Copyright." She finds fault with Professor Liebowitz's conclusions and calls for

"To hold file sharing uniquely responsible for the decline in record sales i.e., largely unauthorized downloading, is basically erroneous and far too simplistic. Moreover, such an assertion indicates a lack of understanding of the dynamics of the current process of creative destruction and transformation to the digital paradigm in the 'recorded' music industry. The word 'recorded' itself denotes a kind of backward looking perspective, as it may no longer be the primary technological format for the rapidly converging music-ICTs-entertainment-telecommunications industry in the third millennium. ...

Our own research would support the arguments made in the Andersen and Frenz Study, 2007, that indeed there may be a significant positive relationship between file sharing and purchase or greater use of various other formats containing music content (although not necessarily record sales per se). ...

The more recent, healthy overall industry earnings indicate the opposite of Liebowitz' assertion that ...'file-sharing appears to have caused the entire decline in record sales and appears to have vitiated what otherwise would have been a growth in the industry' (Liebowitz, 2007). There is no empirical basis for such a facetious assertion. Additionally, there may be many other reasons for decline in record sales (the white elephant in the room), other than increase in file sharing (e.g., transformation to the digital technological paradigm, excessively high prices of CDs, i.e., excessive mark up, standardized quality, decline in purchasing power for luxury goods, lower degrees of choice and diversity, etc).

File sharing and downloading not only increases market exposure but significantly reduces marketing and advertising costs. File sharing, as the imminent dominant mode of music consumption, is proving to be more 'efficient' than simply purchasing pre-recorded music. Owing to diffusion of technical change, it is far cheaper, as it reduces the costs of intermediation and allows consumers greater choice over listening patterns; facilitating the growth of demand-driven patterns of consumption thereby enabling greater consumer participation, and more interactive modes of consumption. Global consumers as well as new producers can benefit greatly from the new P2P file sharing technologies that should be facilitated and legalised, rather than hindered."

A few comments. First, which "recent, healthy overall industry earnings" is Kozul-Wright referring to? (I know quite a few companies, from recorded music to brick-and-mortar retail to digital distribution, that have found "healthy" earnings -- or any earnings -- to be pretty elusive lately.)

Also, she says file-sharing reduces marketing and advertising costs and increases market exposure. Yes, but in practice it's no panacea (which explains why free music is a difficult proposition). P2P can eliminate some costs (related to physical distribution and point-of-sale promotion) but will be replaced by other costs. (And since some consumers will still desire a physical product, the higher costs will not be removed completely.) Building awareness is still an expensive undertaking even if distribution costs are removed. Since P2P is a search-based technology, awareness must exist before a download can take place. Without awareness, market exposure is just untapped potential.

Anyway, I look forward to reading Kozul-Wright's paper and a continuance of the debate.