Wednesday, January 26, 2005

Paper: P2P Business Models

In the USA the content industry is set up to take file-sharing to the gallows in MGM v. Grokster. While the transition to online business models is growing, both the music and movie conglomerates have shown more public interest in restricting this technology than in the revenues P2P networks could bring them. In File-sharing, Sampling, and Music Distribution (SSRN) Martin Peitz and Patrick Waelbroeck investigate the upside of P2P networks for the music labels. Lots of economic formula scattered throughout this paper, but it should be an interesting read (for the music moguls). Here's the abstract:
The use of file-sharing technologies, so-called Peer-to-Peer (P2P) networks, to copy music files has become common since the arrival of Napster. P2P networks may actually improve the matching between products and buyers - we call this the matching effect. For a label the downside of P2P networks is that consumers receive a copy which, although it is an imperfect substitute to the original, may reduce their willingness-to-pay for the original - we call this the competition effect. We show that the matching effect may dominate so that a label's profits are higher with P2P networks than without. Furthermore, we show that the existence of P2P networks may alter the standard business model: sampling may replace costly marketing and promotion. This may allow labels to increase profits in spite of lower revenues.

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