Evidence of Anti-Piracy Three Strikes' Impact Mounting?

Don't mention the Digital Economy Act... Saskia Walzel looks at the impact of three strikes on legal sales

Image: 'Drapeau Hadopi' by choisirtoujours (CC BY 3.0)

According to the Record Industry Association of America (RIAA) "The Evidence of Anti-Piracy's Impact Continues To Mount" and the impact of the French three strikes law is cited as example of how enforcement measures lead to an increase in legal digital music sales.

"Professor Brett Danaher (an Economist at Wellesley College) and colleagues recently did a study on the effects of a copyright alert system similar to the one announced in the United States last summer, that has been operating since 2010 in France (generally referred to as "HADOPI", see here, here, and here). Using data on iTunes sales in France, and other major European markets as comparisons, the study estimated that digital sales improved 22.5% for tracks and 25% for albums due to the enactment of and publicity surrounding the HADOPI graduated response anti-piracy laws.  Further, the study found that sales increased even more strongly among the genres of music that were most often pirated (see Professor Danaher presenting his results here)."

The impact of Hadopi, the three strikes law which gets its name from the Government agency Haute Autorité pour la Diffusion des Œuvres et la Protection des Droits sur Internet, has been subject to numerous studies. Hadopi sent the first warning letter out 17 months ago and between October 2010 and December 2011 Hadopi has notified more than half a million internet subscribers that their connection is allegedly used for copyright infringement. 755,015 notifications were sent, and reportedly about 6 percent of internet subscribers in France were notified. No disconnections so far but Hadopi has for the first time passed the details of subscribers who have received multiple notifications to prosecutors in February this year. Subscribers could face a fine, or the disconnection of their internet access.

As always the impact of any given measure depends on how you look at it. In its own report, published earlier this month, Hadopi notes a decline in use of peer-to-peer filesharing networks in France, stating "benchmarking studies covering all of the sources available shows a clear downward trend in illegal P2P downloads." Hadopi does not pinpoint how much "peer-to-peer downloading" has declined following the implementation of Hadopi, instead quoting a range of surveys by third parties arriving at widely different results based on different methodologies. On the basis of various sources Hadopi concludes that the audience for legal music services, such as iTunes, remains overall stable. Spikes in use can be seen particularly in relation to Spotify, while the audience of iTunes only slightly increased. An increase in legal platforms across music, video and e-books in France is also noted.

The Hadopi report does not comment on revenues from legal music services in France, and whether those who have stopped filesharing because of Hadopi are indeed now paying for their iTunes. According to figures published by SNEP, the Syndicat National de l'Édition Phonographique, France's digital music industry grew by 25 percent to €110 million in 2011. Downloads generated €56 million of revenue, an 18.4 percent increase compared to 2010. Streaming and subscriptions grew by 73 percent to €39 million. Subscriptions services such as those from Spotify and Deezer grew by 89 percent to €26 million. Revenues from physical formats were down 11.5 percent to €412 million. Total revenues in 2011 were €617.2 million, down 3.9 percent from 2010.

How the long terms trend of increased digital music sales in France interacts with Hadopi remains unclear, nevertheless France is advanced as the poster child for the voluntary "six strikes" agreement which is about to go operational in the US. The fact that digital music sales are on the increase in countries which have not implemented three strikes is neglected. According to figures published by the BPI, the British Phonographic Industry association, digital music revenues grew by 24.7 percent in 2011 to £281.6 million, a third of record industry trade income in the UK. The BPI also reported a stronger growth in digital albums, which was up by 43.2 percent, and premium subscriptions, up by 47.5 percent. The BPI described the 3.4 percent decline in total recorded music trade revenues in 2011 to £795.4 million as "modest", with revenues from physical formats having fallen by 14.1 percent to £513.8 million in 2011. This is in line with long terms trends in the British recorded music market, but the music industry highlighted that growth in digital revenues now off sett two-thirds of the decline in income from physical sales. The BPI observed that:

"It is highly encouraging for the long-term prospects of the industry that the pace of digital growth continues to accelerate. British labels are supporting a wide range of innovative music services and music fans are embracing digital like never before. The record industry has continued to invest heavily in discovering and supporting outstanding British talent, which has helped sustain revenues in the face of difficult economic circumstances".

Without providing much context the Hadopi report concludes that in France "the wide range of legal content offers are gaining visibility and some offers have posted excellent progress. The labelling system for such offers opens up new opportunities and addresses a real need. Uneven and little-known, legal content offers show great potential for development, and it is important that far-reaching action be widely-undertaken and innovation put to use".

But it is unclear whether the increase in digital music revenues in France over the past 12 months would have happened anyway, or corresponds to the increase in legal content platforms. And whether revenues or awareness and use of legal services saw a boost since Hadopi went operational. Does the increase in digital music revenues in the UK suggest that France would have been better off without Hadopi, or that the US should focus on increasing the number of legal services and raising consumer awareness so as to increase revenues from digital.

France is the first country to actually implement three strikes laws, thus Hadopi's impact will be studied in detail in other countries where three strikes is being actively considered, such as Ireland, New Zealand, Australia, the UK and the US. Also missing is a cost benefit analysis for the Hadopi scheme. France looks to be one of the few instances where the taxpayer will contribute significantly towards the cost of three strikes with Hadopi reportedly having an annual budget of €11 million and employing 70 people. In New Zealand implementation of the three strikes law, which was rushed through parliament following the earthquake, has stalled because the music industry baulks at the possible cost, the proposed NZ$25 charge per notification being considered unviable.

In the UK the implementation of the Digital Economy Act is set to cost Ofcom some £5.8 million, with the annual cost being projected at £5 million. The cost of the appeals body that needs to be set up is yet unknown. The copyright owners using the scheme will pay most of that cost. But the UK has never established a proper economic impact assessment for the Digital Economy Act and it is unknown whether any increase in digital revenues that may be generated from three strikes would offset the cost of such a scheme. How many years it takes for three strikes to break even is not known either, but surely of interest to the music industry.

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Comments (1)

  1. thinsmek:
    May 05, 2012 at 05:58 AM

    Interesting (I am from New

This thread has been closed from taking new comments.

By Saskia Walzel on Apr 19, 2012

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