Although other factors were influential in the decline of CD sales, digital piracy from P2P services commonly receives the bulk of the blame. According to the RIAA, “In the decade since peer-to-peer (P2P) file-sharing site Napster emerged in 1999, music sales in the U.S. have dropped 47 percent” (Record Industry Association of America, 2011). Statistics such as this show a correlation between the decline in sales and emergence of digital piracy, but researchers have not proven digital piracy to be the direct cause of the decline. Janssens, Vandaele and Beken (2009) propose that file sharing has three possible effects on the record industry.
The first is the substitution effect. This suggests that if customers are able to download music for free through unauthorized online services, they will no longer be willing to legally purchase the same music. Record labels view this as the most likely and threatening effect of digital piracy. However, a real limitation to this theory is to believe that people who would download a free copy would not necessarily legally buy the same product at market price. A second effect is the sampling or exposure effect. By downloading music from the Internet, people are able to experience or preview the product before making the decision to legally purchase the product. This effect positions file sharing as a means to promotion, allowing customers to discover new music with little effort. The third effect is the network effect, which can be compared to radio exposure (Janssens, Vandaele & Beken, 2009). A song’s popularity on unauthorized sites and peer-to-peer networks increases reach of exposure and publicity.
Music labels have responded to the growing threat of digital piracy in two ways: awareness campaigns and legal action. The RIAA states that its response to piracy was “designed to educate fans about the law, the consequences of breaking the law, and raise awareness about all the great legal sites in the music marketplace” ( Record Industry Association of America, 2011). As a means of dissuading people from participating in P2P file sharing, these promotional campaigns were intended to educate people about the issues of copyright infringement and how piracy hurts artists, job growth, and the U.S. economy. These campaigns also informed people of the benefits of using legitimate online music services