iPhone Data Debunks Recording Industry's Report On How French Three Strikes Law Increased Sales

The annual Digital Music Report (pdf) of the International Federation for the Phonographic Industry (IFPI) is a curiously conflicted production. On the one hand, it must celebrate "a healthy 8 per cent increase in our digital revenues in 2011 -- the first time the annual growth rate has risen since records began in 2004 "; on the other, it must continue to push the party line about how the industry is being destroyed by piracy.

The IFPI has a stab a reconciling that contradiction, writing: "The truth is that record companies are building a successful digital music business in spite of the environment in which they operate, not because of it." However, it desperately needs some proof of that statement, because otherwise the simplest explanation is that piracy is not a serious problem, and that the recording industry is thriving, just like the rest of the creative industries.

The IFPI probably thinks it has found some proof in the French HADOPI experience, which, according its report, demonstrates that introducing three-strikes measures against unauthorized sharing boosts digital sales.

A new academic study -- The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence from an Event Study in France, by Danaher et al -- has also found evidence that Hadopi has had a positive impact on iTunes sales in France. The authors studied sales of digital singles and album downloads on iTunes from July 2008, before the law was adopted, until six months after the start of notices. They developed an estimate of what French iTunes sales would have looked like in the absence of Hadopi by studying a control group of similar markets.

The analysis found that French iTunes sales saw a significant uplift at exactly the period when awareness of Hadopi was at its highest, in Spring 2009, when the law was being debated in the National Assembly. This effect was maintained throughout the period studied. French iTunes sales were 22.5 per cent higher for singles and 25 per cent higher for digital albums than they would have been, on average, in the absence of Hadopi.

Taking a look at the study (pdf) provides some details of how the research was carried out:

For this study, we obtained a panel of total weekly iTunes sales units for a number of European countries including France. Our data extend from July 2008 to May 2011, and we observe separately both track unit sales and album unit sales. The data were obtained directly from the four major music labels -- EMI, Sony, Universal, and Warner -- and aggregated to reflect total iTunes sales for the majors.

In an attempt to observe the effect of HADOPI, these sales were compared with a control group of five other European countries that didn't introduce similar legislation: the UK, Italy, Spain, Germany, and Belgium. By looking for differences between these two data sets, the researchers hoped to observe the effects of the three-strikes legislation on sales of digital music, using a Google Trends graph of searches for the word "HADOPI" as a proxy for awareness of that legislation, both before and after it was passed.

The graph of iTunes sales for France clearly diverges from that of the control group, lying consistently above it. The divergence begins around about the time that HADOPI was first presented to the French National Assembly, increases slightly, and then decreases a little after the first warning letters were sent out. From this, the researchers deduce that the discussion around HADOPI caused significantly increased sales of iTunes compared to the control countries:

these estimates indicate that French track sales units rose about 25.5% in the control group after March 1, 2009 but by 48% in France, indicating that French iTunes track sales were 22.5% higher on average than they would have been in the absence of HADOPI. Similarly, album sales units rose by 42% in the control group but 67% in France, indicating that HADOPI increased iTunes album sales an average 25% per week in France.

That's a plausible explanation if you believe that piracy is stopping people from buying digital music, but it's not the only one. The French newspaper Le Monde decided to use the same technique of comparing the rise in iTunes sales with Google Trends, but with a different search term. Since iTunes is intimately bound up with Apple's products, Le Monde thought to take a look at the trend for "iPhone" searches on Google.

What it found were five very pronounced peaks in the French searches that corresponded exactly with five (smaller) peaks in iTunes sales, and also to five well-defined external events: the launch of the Iphone 3GS and iPhone 4, and three Christmas seasons. The effect was so marked in France because it was starting from a lower base: according to the researchers, the average sales of iTunes in France were 450,000 per week, while in the UK they were 2,900,000 per week. So an alternative explanation for those impressive increases in sales is simply the uplift in iPhone ownership generated by new launches and the holidays in an immature market with plenty of room for growth.

The researchers do offer one other piece of evidence for the uplift in sales being due to the crackdown on piracy:

EMI surveys of French citizens show that that Rap and Hip Hop are the most heavily pirated genres, even relative to popularity in legal sales channels. While Rock and Pop experience average levels of piracy, the data also indicate that genres such as Classical, Christian, Folk, and Jazz experience significantly lower levels of piracy.

Therefore, they argued, if the increase in sales were due to reductions in piracy, they would expect "the increase in Rap sales to be larger than that for Rock and Pop and the increase for Classical, Christian, etc. to be quite low." And that is precisely what is observed. Conclusive proof? Maybe not.

As the Le Monde analysis points out, another explanation is that many recent iPhone purchasers are younger people, who are generally the most interested in acquiring the latest technology as soon as it comes out. And younger people, by and large, listen to more Rap than Classical or Christian music, which would explain the difference in the increase across genres.

Spending so much effort here on exploring one research report might seem excessive, but it matters. The IFPI is already branding this supposed increase in digital music sales -- quantified by the researchers at $18.6 million annually for France -- the "HADOPI Effect". In the months to come, you can bet that the recording industry's representatives and lobbyists will be visiting governments and showing them this "proof" that three-strikes really "works" -- and demanding they follow suit to "protect" the artists.

What's ironic is that the IFPI report spends many of its pages discussing a much more sensible way of reducing unauthorized sharing: offering high-quality music streaming services instead, as recent market research from Scandinavia indicates. Unfortunately, the recording industry is so obsessed with punishing pirates that it can't see that its future lies in promoting innovation, not legislation.

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PayPal strikes again, and this time an antique violin pays the ultimate price

The bewilderingly aggressive service branch of PayPal has again drawn the ire of many, as the company demanded that a pre-World War II antique violin, valued at $2,500, be destroyed in order to issue the disputer a refund.
It hasn’t been a particularly good few weeks for the customer service industry. Last week it was the saga of Paul Christoforo, the man who would be friends with the mayor of Boston, bro, who decided that civility was for the weak and paid a hefty price when he picked on the wrong guy. Now it is PayPal. Again.
PayPal is one of those services that has so dominated the space it exists in that it has inevitably become a source for users around the world to share, use, and occasionally become victims of. To be fair, there are millions of transaction every month at PayPal that go off swimmingly, with nary a problem. But when problems due arise, they can be whoppers.
Last month PayPal awoke the Internet on the wrong side of the bed, and then proceeded to face the digital hounds following an incident with Regretsy.com over blocking gifts for needy children. The condensed version is that Regretsy asked people to buy random gifts for a group of handpicked children, then ended up earning more money than necessary. It then decided to use that money to help the families even further and pay some of their bills. All of the transactions were conducted via PayPal, who froze Regretsy’s account before a single gift was sent.
The trouble stemmed from a classification error on Regretsy’s part that could easily have been filed under “honest mistake,” but that apparently wasn’t an option for PayPal’s reps. After a bizarre back and forth with a PayPal customer service rep, it was determined that Regretsy had erred by having the gifts purchased as “donations.”
The gifts were all part of a grab bag, so when a person wanted to help out they essentially just donated $2 in order to contribute to the total rather than choosing an individual gift to send under their name. PayPal, however, saw things differently, and concluded that each $2 transaction was actually a purchase and not a donation. That led the company to freeze the account and demand that Regretsy’s owner and operator, April Winchell, issue a refund for each and every donation, of which PayPal would receive a small transaction fee on each.
Logic would dictate that a quick call to an actual human could verify Winchell’s good intentions, but that was not to be. In a series of increasingly weird conversations, the customer service rep stopped just short of accusing Winchell of fraud, and birthed the bizarre — and very stupid — phrase that became a minor Internet meme, “You can use the donate button to raise money for a sick cat, but not poor people.”
Needless to say, the denizens of the intertubes were not amused, and the story quickly went viral. PayPal magnanimously addressed the situation (after being caught), and promised to help find an amicable resolution, which to their credit they did. But the story doesn’t end there.
Yesterday on Regretsy, Erica, a fan of the site, emailed in her own personal problems with PayPal that echoes Winchell’s “oh my god what are they thinking” experience with the financial giant.
Erica was in the process of selling an antique violin that predated World War II, to a buyer in Canada for $2,500. But when the buyer received the violin, they disputed the label on the instrument. Erica asserts that this is a common thing in the world of antique instruments — and a quick Google search can verify that it is indeed commonplace. On top of that, she also confirmed that it was appraised and verified by a legitimate luthier.
The buyer wanted a refund, which Erica was willing to provide, but then PayPal got involved. In order to issue a refund, PayPal demanded that the violin be destroyed, as the company had somehow decided that the instrument was counterfeit–despite any actual investigation into the piece itself.
The buyer then sent Erica a picture (above) of the destroyed instrument. She contacted PayPal, who strongly defended its actions. In the Terms of Service for PayPal, there is a line that reads “PayPal may also require you to destroy the item and provide evidence of its destruction.”
In many ways, this may seem like a justifiable move on PayPal’s part to protect its customers, at least until you start to think about it. First, PayPal is in no way a legitimate source for the authentication of antique violins, especially since the bulk of its interaction was handled by phone and email.
Second, for some reason PayPal immediately seemed to side with the buyer. From an impartial point of view, there is no particular reason to assume the buyer is telling the truth while the seller is not. Perhaps the PayPal reps just trust Canadians.
Third, even if this were a scam there were better ways to handle it, none of which include PayPal anointing itself as the arbiter of a product very few people in the world are experts on. Now, without actually having the shattered violin analyzed by an expert, there is no way to confirm that Erica is telling the truth. But even if she was trying to sell a counterfeit, it was not PayPal’s place to decide that, especially without concrete evidence.
If Erica is telling the truth, thanks to PayPal she is now out a $2,500 violin, and a rare antique has been destroyed. All because of a policy that had no business being cited in this situation.
PayPal has said that it is investigating the matter.

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