Monday, March 29, 2004

mp3s are good substitutes for singles

The story of Napster is kind of like the story of the dog that did not bark. There was a robbery in town, but no one heard a sound. The detective (Holmes, I believe) deduced that since the village dog did not bark signaling an intruder, it had to be an inside job. Sometimes the biggest clues are things that do not happen, and robust CD sales seem to be the silent dog in the file trading world.

I used to believe, like the RIAA and many other people, that if folks could download music, why would they go out and pay for it? In practice, however, downloading has become huge, yet music sales have remained pretty robust. If mp3s are substitutes for CDs -- as I once believed -- then either 1) music sales were destined to skyrocket between 98-04, and today's flat growth needs to be compared to huge foregone revenue 2) CD sales must go down. 1) is implausible and 2) seems not to have happened, so I must revise my opinion and note that downloading mp3s does not have much effect on CD buying behavior -- the two are not very good substitutes after all.

Nevertheless, there seems to be some evidence that mp3s are good substitutes for singles. Singles are very overpriced, and increasingly hard to find, so I don't think they offered much value to begin with. It is also interesting to note that singles are mainly used for radio play and album promotion -- things that P2P networks support.

Overall, it may be that whatever substitution may be happening from albums to mp3s is balanced by complementarity as downloaders try out a song (cost free, from the comfort of their own homes) and then go out and buy the album.

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