The February 2007 issue Journal of Political Economy contains a story written by Felix Oberholzer-Gee (Harvard University) and Koleman Strumpf (University of Kansas) which claims to have found that illegal music downloads have had no noticeable effects on the sale of music. The title of the piece is The Effect of File Sharing on Record Sales: An Empirical Analysis.

The authors of the story analyzed data from the last four months of 2002 and estimated that P2P downloads had at most an impact of 0.7% on sales of CDs in that time frame, a figure they say is statistically insignificant.

Using detailed records of transfers of digital music files, we find that file sharing has had no statistically significant effect on purchases of the average album in our sample. Even our most negative point estimate implies that a one-standard-deviation increase in file sharing reduces an album’s weekly sales by a mere 368 copies, an effect that is too small to be statistically distinguishable from zero.

There is a lot of math in that article and I’m not a statistician, but but I suspect they are correct. The study reports sales figures for the researched time period as being down by 80 million units and says that downloading can only account for, at most, 6.6 million, leaving 73.4 million to be attributed to some other cause.

The authors suggest that the industry has skewed the numbers by focusing on units shipped rather than the more accurate number of units sold. They claim that with retail shelf space at a premium, retailers are ordering fewer of each title thereby reducing the load of unsold stock sitting on the shelves. They also cite the rise in sales of DVDs (grew by twice the decline in CD sales during the same period) and video games, pointing out that consumers may be spending their discretionary income on these titles rather than CDs.

Another theory I would purpose that may have impacted the number of CDs sold is the fact that much of the mainstream music that is marketed today is just bad music. I won’t use that argument in regards to bluegrass though, so we’ll have to go with their theories about where and why consumers are spending their cash.