Curing Americans’ Kleptomania: An Empirical Study on the Effects of Music Streaming Services on Piracy in Undergraduate Students

By John G. Moustis Jr.* & Austin Root*

I. Introduction

Music piracy is widely considered to be the greatest problem faced by the music industry worldwide.[1]  According to a 2007 study conducted by the Institute ty Policy Innovation, Americans’ music pirating habits have caused:

• An annual reduction in the U.S. economy by $12.5 billion;
• The loss of 71,060 jobs in the sound recording industry and downstream retail;
• The loss of $2.7 billion in annual earnings by workers in the sound recording industry and downstream retail; and
• The loss of at least $422 million in state and federal tax revenue.[2]

Studies suggest new technologies like internet radio and interactive streaming services could significantly reduce piracy.[3]  Although this topic is at the center of many legal comments, little empirical research has been conducted to answer this question.

In response to this gap in the literature, the author conducted a survey on the music consumption habits of 252 college students.  The results demonstrate that while music piracy is still widespread on college campuses, streaming services have already begun to reduce the amount of music pirated per year.  If streaming is in fact responsible for this shift away from piracy, Congress would do well to implement a compulsory licensing system for music streaming webcasters.  Such a structure could help music distributors stabilize their business model and incentivize music consumers to use their services in place of alternative, illicit means.

After briefly discussing the modern tools of music pirates and the current state of digital music distribution technologies, this study presents empirical data showing that music piracy is alleviated by internet streaming services.  The methodology used for data collection follows, along with a statistical analysis.  The paper concludes with a discussion on the effects of internet technologies on music piracy and how enacting a compulsory licensing scheme would help streaming services to succeed, in turn lowering music piracy.

II. America’s Addiction to Music Piracy

A. What is Music Piracy?

While music piracy may be committed in a number of ways under copyright law, this study focuses on digital music piracy.  Digital music piracy is committed specifically through the copying, distributing, transmitting, or making available of copies of digital audio files.[4]  This may be done by uploading or downloading a copyrighted song from an unlicensed or unauthorized webpage, P2P network, or file-exchange server;[5] burning a CD, other than for archival use;[6] or converting a video hosted on a webpage into a digital audio file.[7]

B. The Extent of Music Piracy Today

Illegally downloading music is rampant throughout the United States today.  Forty percent of Americans aged eighteen and older have copied CDs or downloaded music files for free.[8]  Eighty-seven percent of students currently in college conduct some form of illegal copying, with each college student maintaining on average over 800 illegally downloaded songs.[9]

Torrent file trackers estimate that around 70 million people have been found across all formats of file-sharing programs on a daily basis,[10] while 30 million people engage specifically in torrent file-sharing every day.[11]  It is safe to conclude that music piracy is more prevalent in America than ever before.

Media piracy is most common among youth.  Specifically, undergraduate college students are the most active music pirates.[12]  However, while young people are the most active pirates, they are also more likely to adopt new technologies.[13]

III. Today’s Music Technologies

The physical size of consumers’ music libraries and listening devices has continuously shrunk over time.  From records and phonographs to ephemeral radio waves and pocket-sized stereos, it is now easier for people to access as much music as possible, at all times, wherever they are.

MP3s were the original solution to the demand for portable music until MP3 players and phones became integrated.  The age of the iPod was quickly brought to a close as the smart phone era was ushered in.[14]  However, the desire for smaller, slimmer smart phones, in addition to the presence of tens or hundreds of apps on a phone, reduced the amount of hard drive space available for music storage.  This drove the need for a music format that took up even less physical space.

People today are switching by the millions[15] to new music streaming services such as internet radio,[16] interactive streaming services,[17] and on-demand music videos.[18]  Via these distribution mediums, consumers are able to access all of the music they desire without having to store the music files directly on the device they are carrying.  We can see the high demand for music streaming today as the market continues to shift from CD and digital purchases, while streaming and internet radio revenues continue to increase.  In 2014, the number of paying streaming subscription users rose by 46 percent, while digital downloads decreased by eight percent.[19]  In the same year, the streaming service webcasters alone earned $1.6 billion.[20]  Streaming is gaining popularity at a rate that is even faster than the rate at which digital downloads overtook physical mediums.[21]

IV. The Uncertain Future of Interactive Music Streaming Services

Copyright law compartmentalizes streaming services into three distinct groups:[22] (i) interactive;[23] (ii) non-interactive, subscription;[24] and (iii) non-interactive, non-subscription.  In accordance with copyright law, streaming services that fall under categories (ii) and (iii) are subject to compulsory licensing, meaning those types of webcasters may stream a copyrighted sound recording so long as the webcaster pays the licensing fee set forth by the copyright royalty board.[25]  In contrast, category (i) services must negotiate directly with sound recording copyright owners to obtain digital performance licenses.[26]  These interactive services suffer from the increased transaction costs that come with having to deal with each copyright owner individually,[27] such as unpredictable price schemes.[28]  For example, in 2012 the interactive streaming company Spotify came to an agreement with record labels to pay the higher of $200 million or 75 percent of total revenues.[29]  It is expected that Spotify and other interactive streaming webcasters’ costs will continue to rise as their revenues continue to increase.[30]

The current licensing scheme for interactive streaming services has resulted in the concentration of certain artists’ music within some streaming services and not others.[31]  If sound recording copyright holders do not want their songs played via an interactive streaming service, they are not required by law to issue a license to the service.  Under the current scheme, for example, if a person purchases a subscription to Spotify, that person will not be able to listen to almost all works by mega-artists such as Taylor Swift, Jason Aldean, and Garth Brooks, who either pulled their music from Spotify or never made it available on Spotify to begin with.[32]  This current scheme forces consumers to use multiple channels or mediums to listen to their favorite songs. Many individuals turn to piracy as an alternative to this cumbersome process.

V. Previous Literature on Music Streaming Services and their Effects on Music Piracy

As new music consumption technologies began to develop, researchers shifted their focus towards the effects of these new services on music piracy.  So far, the results have been mixed.  One study asked respondents to self-report how much they pirated music before and after starting to use the Spotify streaming service.[33]  Seventy-five percent of subjects reported pirating music less after beginning to use the interactive streaming service.[34]  Other studies have shown that streaming and internet radio users are the demographic most likely to purchase physical or digital albums after hearing music via online mediums.[35]  However, one survey of college undergraduates found that those who use streaming services are more likely to engage in music piracy.[36]

Legal scholars have written a number of articles on this topic.  Some suggest that supporting interactive streaming service growth in the music industry by developing a compulsory licensing scheme for interactive webcasters can help combat diminishing revenues in the music industry.[37]  How exactly these schemes should look is widely debated. Most articles published by legal scholars on this topic are limited in scope to policy analyses and do not make use of empirical data.[38]

VI. The Present Study

This study hopes to build upon and inform previous legal comments through the use of empirical data. In the current study, the author attempts to expand on existing research by asking the following question:

What effects does the rapid popularization of music streaming services have on (a) the amount of students who pirate music and (b) the amount of music illegally downloaded?

In exploring the previous question the following hypotheses are proposed:

H1 – A student’s use of music streaming services does not affect whether that student pirates music.

H2 – A student’s use of music streaming services does affect the amount of music that student pirates.

VII. Experimental Design & Methodology

This study is based on a survey conducted in the fall of 2015 at the University of Illinois in Champaign, Illinois.  In total, 252 participants responded.  The participants’ ages range from 18 to 32 years old, with the mean age of the sample being approximately 20 years old.  Of the sample population 140 participants were male, 107 participants were female, and 5 gave no response.

The data were collected through a questionnaire distributed to the students near the end of classes they were currently attending.  The survey consisted of 11 questions.  The first part of the survey gathered general information concerning the music consumption habits of the respondent.  The second part collected asked the respondents about their use of streaming service account subscriptions and piracy habits.[39]  The third part of the survey measured the respondent’s knowledge of policy and punishment, along with perceptions of their peers’ piracy habits.  The last section gathered demographic information.

To capture the undergraduate students’ levels of participation in music piracy, the survey asked respondents to indicate approximately how many files they had illegally downloaded in the past year.  Potential responses included: not applicable (none); 1–10; 11–100; 101–1000; more than 1000 files.

The next variable measured how respondents consumed music.  Individual respondents were given a list of distributional mediums (e.g. CDs/Vinyl Records, Analog Radio, Satellite Radio, Internet Radio, Interactive Streaming Services, MP3s, and Other) and asked to mark all that apply.

The next variables were based off more specific data regarding the respondent’s use of internet radio and streaming service accounts.  To measure the students’ habits regarding the use of internet radio and streaming service accounts, the survey asked them to indicate whether they had ever purchased a streaming service account subscription.  These data allowed us to categorize individuals as account purchasers or those who just use internet radio and streaming services to consume music.

To analyze the data, the study used descriptive statistics, inferential statistics, and regression analyses.  First, the descriptive statistics of the sample population were analyzed.  Then each dependent variable was analyzed using inferential statistical techniques and regression analysis.

VIII. Results

The most common medium used by participants was Interactive Streaming Services (75.79 percent).  Digital MP3s (65.87 percent) and Internet Radio (63.10 percent) are the next most popular mediums.

Approximately 40.48 percent of the participants reported that they had purchased a streaming service subscription, meaning a majority of the participants (59.52 percent) either choose to use the free version of streaming services or not to use such mediums at all.  Of the participants who purchased streaming service subscriptions, 38.24 percent allowed others to use their account while 59.80 percent said that they do not.  Further, 42.46 percent of sample population indicated that other people allow them to borrow a streaming service subscription.

A vast majority of the respondents (82.94 percent) reported that they have pirated music.  Only 17.06 percent indicated that they have never engaged in the activity. Of those who have engaged in music piracy, most students (38.76 percent) pirated 11-100 files in the past year, 29.29 percent pirated 101-1000 files, 12.92 percent pirated 1-10 files, and 9.57 percent pirated more than 1000 files in the past year.  7.18 percent of the respondents who said they have pirated music reported they had pirated zero music files in the past year.  This indicates that they likely have stopped engaging in music piracy.

A. Pirates

The first dependent variable analyzed was undergraduate students’ tendency to be a music pirate.[40]  In order to discern which variables, if any, affect the probability that a person is a music pirate, a regression analysis was conducted.[41]  The analysis showed no correlation between using a streaming service and whether a person engages in music piracy.[42]

Table 1
Table 1

B. Amount of Music Pirated

To determine which variables, if any, affect the probability that a person illegally downloads a certain amount of music, a Pearson’s chi-square statistic was conducted.  According to that test, consuming MP3s, either legally or illegally,[43] affected the probability that a respondent pirated more music per year.  In contrast, purchasing a streaming service subscription[44] affected the probability that a respondent pirated less music per year.  Further, the analysis revealed that those who do not purchase a streaming service subscription pirated more music per year than subscribers.

Table 2
Table 2

The statistical significance of these results was again confirmed through a multiple regression analysis (see Table 3 below).[45]  Further, this regression analysis revealed a negative correlation between purchasing a streaming service or internet radio account and the rate of music piracy,[46] meaning that purchasing a streaming subscription was less likely to cause a respondent to pirate music in large quantities per year.

Table 3
Table 3

IX. Discussion

Students who have purchased a streaming service subscription illegally download fewer songs per year.  The inferential statistical analysis and regression analysis confirm this conclusion because there is a negative relationship between purchasing an account and the amount of music pirated.  Although the data tended to show that purchasing a streaming subscription is related to the amount of music a student pirates, the results do not enable the author to confirm the hypothesis that using a streaming service affects the amount of music a student pirates.[47]

Further, the inferential statistics tend to show that individuals who purchased a streaming account were less likely to continue illegally downloading music altogether.  Of the individuals surveyed, 4.27 percent of students who have pirated music in the past, but have not purchased a streaming subscription, no longer pirate music.  11.50 percent of people who have pirated music and have purchased a streaming subscription no longer pirate music.  Further, only 5.07 percent of students who said they consume MP3s no longer pirate music.  In contrast, 12.12 percent of students who do not consume MP3s no longer pirate music.  These statistics demonstrate that subscribers who pay for their streaming accounts are less likely to pirate music, and that those who are not dependent on MP3s are less likely to pirate music.  Therefore, as more consumers purchase streaming subscriptions, a significant number of individuals will reduce the number of songs they illegally download per year or will eliminate their pirating habits altogether.

However, streaming subscriptions, in their current form, are far from a panacea to music piracy.  88 percent of streaming subscribers still engage in music piracy.  The author hypothesizes that this is largely because the song choices within streaming webcasters’ libraries are limited.

Currently there is no effective solution to bring music listeners all of the songs that they want to listen to on one platform that is accessible by any device, anytime, anywhere.[48]  Because sound recording copyright owners are not compelled by law to license to streaming services, many major streaming services like Spotify lack comprehensive song libraries.  In a market where streaming services lack the most popular songs, consumers will be forced to use multiple streaming platforms or turn to alternative, often illicit, technologies.  Absent affordable licensing agreements, streaming services will never be able to provide the vast amount of content desired by consumers.

These failures of copyright law could be remedied with a new licensing scheme.  Many variations on a compulsory licensing system have been proposed to remedy the issues caused by the current scheme.[49]  One compelling system, crafted by James Richardson, suggests a three-part model which secures a minimum royalty rate to sound recording copyright owners, sets a maximum licensing fee for webcasters, and then taxes the licensing fees collected by content owners based on a webcaster’s net revenue.[50]  This system provides content owners with a guaranteed licensing fee, protects webcasters from excessive licensing rates, and incorporates a tax penalty, thereby incentivizing both parties to negotiate fairly.  Such a system acknowledges the rights of both content owners and distributors equally.

X. Conclusion

In conclusion, the results of survey data collected on undergraduate students’ music consumption habits tend to show that those who purchase music streaming service subscriptions are less likely to download large amounts of music illegally.  This evidence supports the conclusion that music streaming subscriptions can help to reduce music piracy.  For the moment, as streaming services becomes more popular, digital audio formats will continue to phase out, concurrently decreasing music piracy.  If music streaming services are not provided with adequate legal footing, however, they will continue to slip further into debt and eventually fold.[51]  This will leave consumers with few desirable, legal music platforms and rouse consumers to pirate more music.  If music creators and webcasters can come to a compromise with regard to a fair compulsory licensing scheme for interactive streaming services, webcasters will be able to provide more comprehensive services to music listeners, removing the temptation to pirate music.  Therefore, policymakers should introduce a scheme similar to Richardson’s three-part compulsory licensing model.

 


*John G. Moustis Jr. University of Illinois College of Law, J.D. candidate, class of 2016. Former intern for SESAC, a US performance rights organization. Current member of a touring cover band.

*Austin Root. University of Illinois College of Law, J.D. candidate, class of 2016. Avid music listener and infamous music pirate. Many thanks to Professors Jennifer K. Robbennolt and Robert M. Lawless for their help and guidance on empirical methods.

[1] See, e.g., Jason R. Ingram & Sameer Hinduja, Neutralizing Music Piracy: An Empirical Examination, 29 DEVIANT BEHAV. 334 (2008); Jyh-Shen Chiou et. al, The Antecedents of Music Piracy Attitudes and Intentions, 57 J. BUS. ETHICS 161 (2005); Neil S. Tyler, Music Piracy and Diminishing Revenues: How Compulsory Licensing for Interactive Webcasters Can Lead the Recording Industry Back to Prominence, 161 U. PA. L. REV. 2101 (2012); Karla Borja et. al, The Effect of Music Streaming Services on Music Piracy Among College Students, 45 COMPUTERS IN HUM. BEHAV. 69 (2015).

[2] Stephen E. Siwek, The True Cost of Sound Recording Piracy to the U.S. Economy, INST. FOR POL’Y INNOVATION (2007), available at http://www.ipi.org/docLib/20120515_SoundRecordingPiracy.pdf (last visited Mar. 14, 2016).

[3] See, e.g., Borja, supra note 1; Tyler, supra note 1.

[4] 17 U.S.C. § 106. See also George E. Higgins et. al, Music Piracy and Neutralization: A Preliminary Trajectory Analysis from Short Term Longitudinal Data, 2 INT’L J. OF CYBER CRIMINOLOGY 324 (2008); Ingram, supra note 1.

[5] Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 919 (2005). See also In re: Aimster Copyright Litigation, 334 F.3d 643, 645 (7th Cir. 2003) (“If the music is copyrighted . . . swapping . . . infringes copyright.”); A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1014 (9th Cir. 2001) (“Napster users who download files containing copyrighted music violate plaintiffs’ reproduction rights.”).

[6] Resources and Learning: About Piracy, RIAA, https://www.riaa.com/resources-learning/about-piracy (last visited Mar. 14, 2016).

[7] Id.

[8] JOE KARAGANIS & LENNART RENKEMA, COPY CULTURE IN THE US & GERMANY (2013), available at http://piracy.americanassembly.org/wp-content/uploads/2013/01/Copy-Culture.pdf.

[9] Zhiyong Yang & Jingguo Wang, Differential Effects of Social Influence Sources on Self-Reported Music Piracy, 69 DECISION SUPPORT SYS. 70 (2015).

[10] Ray Delgado, Law Professors Examine Ethical Controversies of Peer-To-Peer File Sharing, STANFORD REPORT (Mar. 17, 2004), http://news.stanford.edu/news/2004/march17/fileshare-317.html.

[11] Ernesto Van der Sar, Top BitTorrent Trackers Serve 30 Million Peers Across 4.5 Million Torrents, TORRENT FREAK (July 6, 2013), https://torrentfreak.com/top-bittorrent-trackers-serve-30-million-peers-across-4-5-million-torrents-130706.

[12] Rajiv K. Sinha & Naomi Mandel, Preventing Digital Music Piracy: The Carrot or the Stick?, 72 J. MKTG. 1 (2008). See also Yang, supra note 9.

[13] Tiana Tucker, What Influences Young Adults’ Decision to Adopt New Technology, 2 ELON J. OF UNDERGRAD. RES. IN COMM. 147 (2011); PETER ZOLLO, GETTING WISER TO TEENS: MORE INSIGHTS INTO MARKETING TO TEENAGERS (2004).

[14] See Sean Hollister, The Age of the iPod is Over, THE VERGE (Jan. 27, 2014, 7:57 PM), http://www.theverge.com/2014/1/27/5351918/apples-ipod-rides-into-the-sunset.

[15] IFPI, IFPI DIGITAL MUSIC REPORT 2015: CHARTING THE PATH TO SUSTAINABLE GROWTH (2015), available at http://www.ifpi.org/downloads/Digital-Music-Report-2015.pdf.

[16] E.g., Pandora, Slacker Radio, and iHeartRadio.

[17] E.g., Spotify, Apple Music, Google Play, Tidal, and Amazon Prime Music.

[18] E.g., Vevo.

[19] IFPI, supra note 15.

[20] Id.

[21] Charles Sykes, Album Sales Are Looking Up, USA TODAY, Jan. 5, 2012, at D3.

[22] Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39, 109 Stat. 336; Digital Millennium Copyright Act, Pub. L. No. 105-304, §§101-02, 112 Stat. 2860, 2861-63.

[23] These services are offered by webcasters like Spotify, Tidal, Rhapsody, Apple Music, Amazon Prime Music, and Google Play, among others.

[24] These services are offered by webcasters like Pandora, Slacker Radio, and iHeartRadio, among others.

[25] 17 U.S.C. § (c)(3)(A) (2012).

[26] 17 U.S.C. § 114(d)(3)(A) (2012).

[27] Tyler, supra note 1.

[28] James Richardson, Create a Compulsory Licensing Scheme for On-Demand Digital Media Platforms, 31 ENT. & SPORTS LAWYER 9 (2014), available at http://www.americanbar.org/content/dam/aba/publications/entertainment_sports_lawyer/esl31-2.authcheckdam.pdf.

[29] Eric Eldon, Spotify Is Having a Good 2012: Revenues Could Reach $500M As It Expands the Digital Music Market, TECH CRUNCH (Nov. 10, 2012), http://techcrunch.com/2012/11/10/spotify-is-having-a-good-2012-revenues-could-reach-500m-as-it-expands-the-digital-music-market.

[30] Richardson, supra note 28.

[31] See Steve Knopper, Taylor Swift Pulled Music from Spotify for ‘Superfan Who Wants to Invest,’ Says Rep, ROLLING STONE (Nov. 8, 2014), http://www.rollingstone.com/music/news/taylor-swift-scott-borchetta-spotify-20141108.

[32] This fact can be observed by visiting http://www.spotify.com and http://www.tidal.com and searching for “Taylor Swift” within the websites. Observe how limited the song selection of Spotify is compared to that of Tidal.

[33] Mehmet Delikan, Changing Consumption Behavior of Net Generation and the Adoption of Streaming Music Services: Extending the Technology Acceptance Model to Account for Streaming Music Services (June 1, 2010) (unpublished master’s thesis, Jonkoping International Business School), available at http://www.diva-portal.org/smash/get/diva2:324142/FULLTEXT01.pdf.

[34] Id.

[35] Kaitlin M. Pals, Facing the Music: Webcasting, Interactivity, and a Sensible Statutory Royalty Scheme for Sound Recording Transmissions, 36 J. CORP. L. 677, 692 (2011).

[36] Borja, supra note 1.

[37] Borja, supra note 1. See also John Eric Seay, Legislative Strategies for Enabling the Success of Online Music Purveyors, 17 UCLA ENT. L. R. 163 (2010).

[38] Tyler, supra note 1.

[39] In another paper the author discusses the how undergraduates’ knowledge of school and federal policies affect their propensity to pirate music. Those topics are not discussed in this paper. See John Moustis & Austin Root, Who Knows the Rules?: How Internet Technology and Perceptions of Policy Affect Music Piracy in Undergraduate Students (December 2015) (unpublished manuscript, University of Illinois College of Law).

[40] I.e., someone who currently pirates music.

[41] The independent variables accounted for were gender, streaming users, MP3 users, those who use others’ purchased streaming accounts and do not purchase their own, and overall knowledge level of government and university policies. The formula can be described as follows: Pirate = α + b1(Gender) + b2(Modern) + b3(Digital) + b4(UseNoPurch) + b5(OverPolicy) + ε.

[42] The analysis did reveal a correlation between being a music pirate and being male (p = 0.029) and also consuming MP3s (p = 0.035).

[43] p = 0.004

[44] p = 0.0018

[45] The variables accounted for were gender, MP3 users, those who purchased accounts, streaming users, and overall knowledge level of university and federal policies. The formula can be described as follows: PirateAmount = α + b1(Gender) + b2(Digital) + b3(PurchaseAccount) + b4(Modern) + b5(OverPolicy) + ε. There was a statistically significant relationship between gender and the level of participation in music piracy (p = 0.015). Also, we found that there is a positive relationship between consuming MP3s and the level of participation in music piracy (p = 0.010).

[46] p = 0.024

[47] H1: A student’s use of music streaming services does not affect whether that student pirates music (ACCEPT). H2: A student’s use of music streaming services does affect the amount of music pirated by that student (REJECT).

[48] Steve Knopper, Islands in the Stream: The 10 Biggest Holdouts in Digital Music, ROLLING STONE (Jan. 2, 2015), http://www.rollingstone.com/music/news/artists-refuse-stream-music-20150102.

[49] See, e.g., Richardson, supra note 28; Seay, supra note 37; Tyler, supra note 1.

[50] Richardson, supra note 28.

[51] See, e.g., Richardson, supra note 28; Seay, supra note 37; Tyler, supra note 1.