Handbook on the Digital Creative Economy
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Handbook on the Digital Creative Economy

Edited by Ruth Towse and Christian Handke

Digital technologies have transformed the way many creative works are generated, disseminated and used. They have made cultural products more accessible, challenged established business models and the copyright system, and blurred the boundary between producers and consumers. This unique resource presents an up-to-date overview of academic research on the impact of digitization in the creative sector of the economy.
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Chapter 23: Internet piracy: the estimated impact on sales

Stan J. Liebowitz


Fifteen years ago the term ëfile-sharingí was unknown. Then Napster arrived in the second half of 1999 and grew to be an international sensation during 2000. The sound recording industry experienced a dramatic swoon in sales beginning in 2000, continuing unabated (with one informative exception) through 2010. The industry has blamed this sales decline on the rapid growth of file-sharing. Although Napster was effectively shut down as an unauthorized file-sharing service within two years of its birth, its progeny live on, as do new habits developed by music listeners. Shortly after Napsterís arrival, economists began to examine the likely impacts of file-sharing on the sound recording market. Further, as faster download speeds and the invention of BitTorrent allowed file-sharing to expand into movies, the impact of file-sharing on the movie industry also became a question that economists tried to answer. Although it is clear that pirated versions of products often substitute for the purchase of an original, and this effect is unambiguously harmful to the industry, there are other, more subtle effects possibly at work, as well. Piracy could allow a consumer to discover new songs that then induce the consumer to go purchase an album that might otherwise have not been purchased, for example. This ësamplingí effect, first proposed in Liebowitz (1985), makes the theory of piracy somewhat ambiguous.

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