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May 31, 2007 - 8:51pm — Isaac Chambers
The reason Google is able to offer so many services for free is because the services they offer don't have a huge operating cost. So, yes, they have to pay employees to code the software, deal with customer support, pay for servers and hardware, and pay for all of things that any company pays for, but think about the cost of emails being sent. While most companies business model is to maximize the profit margin by charing a premium on a services that doesn't cost them a lot, Google's business model is to offer the services for free and generate money from advertising. Would this work for music? Doubtful. Because of the RIAA, music is expensive, and a service such as free music couldn't be offered without many restrictions and heavy advertising. I don't know about you, but I hate the radio because of the restriction and all of the advertisements. I'd rather pay a few dollars more for an ad-free book than buy a cheaper book that has ads on every page. Advertising is becoming a major turn off because of the way it is flaunted around these days. Even paid subscriptions to unlimited music with no advertisements are not popular. People want to OWN their music, not rent it.
Numerous studies have shown that illegal music downloading actually increases sales. First, it generates interest in new and lesser known artists. Second, it allows people to try things at no cost or risk. Third, it increases the volume and diversity of music people are exposed to. Fourth, it makes people more likely to legally purchase the same song they illegally downloaded for higher quality and to support the artists. And finally, it increases sales in merchandising and concerts for artists. A recent study also shows that the people that illegally download music actually purchase more music legally than those who do not illegally download music.
Music sales actually did drop circa 2000, but this wasn't due to the rising tide of P2P networks, it was due to the fact that the entire economy took a downturn. In fact, in the last few fiscal quarters, music sales have increased despite the increase in illegal music downloading.
The RIAA is also realizing this, albeit slowly. Previously the RIAA said that illegal music downloads were entirely responsible for the downturn in music sales. Now, the RIAA says that file sharing is, "one factor, along with economic conditions and competing forms of entertainment that is displacing legitimate sales." Another reason, for instance, people weren't buying CDs, is because they were too busy buying DVDs instead. By the time the DVD transition period was over, legal internet music purchases had grown in market share, replacing the lost revenue from CD purchases.
I refer you to this study: "The Effect of File Sharing on Record Sales: An Empirical Analysis" by Felix Oberholzer-Gee and Koleman Strumpf in the Journal of Political Economy. According to the study, the effect of file sharing on music sales is no more than 0.7%
If the music industry really wanted to increase sales, they would give customers what they really want: high-quality DRM free music.


