Since the launch of the iTunes Music Store in the USA in 2003 and in much of Europe in the following years, music trade has shifted rapidly from physical to digital products, raising the availability of products in different countries. Despite this substantial growth, the available choice of digital music has not fully converged across countries. The territorial fragmentation of the EU copyright regime is often perceived as an obstacle to greater availability for consumers.

EU policy makers are now considering the creation of a European Digital Single Market to reduce cross-border trade costs and improve availability of digital goods across countries. Under this proposed policy, a digital song available in one Member State would automatically be available in all States. This naturally raises the question of how much benefit such a policy would create for consumers and producers in Europe and around the world. New research presented at the European Policy for Intellectual Property (EPIP 2015) conference in Glasgow, organized by CREATe (Research Councils UK Copyright Centre), has produced new findings to address this issue.

In their study, Professor Joel Waldfogel and Dr Luis Aguiar rely on data from 17 countries: the US, Canada, 13 EU Member States, Norway, and Switzerland. The authors calculate the economic benefits for consumers and producers from openings to trade in digital music.

The study first compares the baseline current situation (“the status quo”) with a worst-case scenario (“autarky”), whereby only local music is available in each country – a big step backwards compared to today. The authors then compare the status quo with an EU Digital Single Market, and finally they simulate a scenario of worldwide openness, in which all music is available in all countries.

The Benefits of an EU Digital Single Market in Digital Music

Since trade liberalizations tend to raise the number of products made available, they generally raise consumers’ benefit in each country. Relative to autarky, status quo trade raises aggregate consumer surplus in all countries by about €300 million (a 11.3% increase). But it turns out that most of the gains from trade are already realized in the status quo; EU consumers already have access to the lion’s share of the music they most desire. Consequently, moving to an EU Digital Single Market only slightly increases EU consumer surplus, by 1.8% (€19 million).

Revenue to producers can either rise or fall with liberalization. On the one hand, more liberalization allows producers to derive foreign revenue from their music. On the other hand, it also leads to more foreign competition. The effects of trade liberalization on music producers are therefore less clear a priori.

Relative to autarky, trade has large benefits for American producers but on balance small benefits to European producers; American producers have a larger market share in Europe than European producers have in the US. Like in the case of consumers, moving from the current status quo to an EU Digital Single Market has relatively small benefits for producers. However these benefits appear to be larger in Europe. A Digital Single Market would lead to an increase in revenue of 1.1% (€10 million) for EU music producers – although benefits vary considerably across Member States – and of 0.2% (€3.7 million) for North American producers.

Finally, the analysis shows that most of the gains from worldwide frictionless trade are accomplished by an EU Digital Single Market. Clearly, the additional gains from moving beyond an EU Digital Single Market to a worldwide open market would be small for European producers and consumers alike.

ENDS

Notes for editors: ‘Digitization, Copyright, and the Welfare Effects of Music Trade‘ by Joel Waldfogel and Luis Aguiar is a paper presented at the European Policy for Intellectual Property (EPIP) Conference, University of Glasgow, 2-3 September 2015.  For more information visit: http://www.epip2015.org/

Joel Waldfogel is the Frederick R. Kappel Chair in Applied Economics at the Carlson School of Management at the University of Minnesota and a Research Associate at the National Bureau for Economic Research.

Luis Aguiar is a Research Fellow at the Institute for Prospective Technological Studies, one of the Joint Research Centers of the European Commission.

For further information contact Luis Aguiar (email: luis.aguiar@ec.europa.eu) or the CREATe PR team (email: contact@create.ac.uk)

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