Study: Music downloads don’t affect sales

Michael Geist has a post about the results of a recent Canadian government survey of downloading and its effect on music sales, and the study (full text of which is here) came to two conclusions: one was that, in the case of those who download music, there was a slight positive effect on their purchases of CDs — in other words, they bought more than the average.

The broader conclusion of the study, which was commissioned by Industry Canada and done by two researchers from the University of London, was that when looking at the entire Canadian population, downloading (which is, after all, still a fringe activity) has no perceptible effect on music sales whatsoever. Michael has the money quote:

“The analysis of the entire Canadian population does not uncover either a positive or negative relationship between the number of files downloaded from P2P networks and CDs purchased.

That is, we find no direct evidence to suggest that the net effect of P2P file sharing on CD purchasing is either positive or negative for Canada as a whole.”

This shouldn’t come as much of a surprise to anyone (except perhaps those who believe the PR campaign waged by the record industry). As far back as 2004 there was a study by the wonderfully-named Felix Oberholzer and Koleman Strumpf, which found that the impact made by downloading on music sales was “not statistically distinguishable from zero.”

Hey, where’s my Apple halo?

Remember the “halo effect?” That was the term some analysts came up with for the boost in Apple sales that was expected to result from the smash success of the company’s iPod music and video players. The assumption was that all the love for the iPod would spill over onto the rest of Apple’s business, and that people would be drawn to purchase more Macs and iBooks and so on. There were several articles and analyst reports last year that said the effect seemed to be working — but now there are numbers that call those early reports into question.

According to the latest report from Gartner Group — obtained (ironically) by Apple Insider — Apple’s worldwide market share actually dropped in the first quarter of this year, to 2 per cent from 2.2 per cent in the same quarter of 2005. Even in the U.S., the company’s primary market, its share barely budged during the quarter, remaining more or less flat at 3.6 per cent (Gartner says the company’s share rose by one-tenth of one per cent). Even if you assume that lots of people held off buying because they were waiting for the new Intel models, that’s still not a great performance — and not much evidence of a halo.

If you’re wondering why it’s ironic that the Gartner report shows up on Apple Insider, it’s because the blog was one of several that were sued for leaking inside information about Apple products — a lawsuit that Apple just recently lost. Could Apple Insider be feeling a bit of what the Germans call schadenfreude?

Google misses – but will it matter?

Google may be working on a version of the Ubuntu Linux OS, as reported by The Register, but maybe it should be spending a bit more time on a good accounting app — it just missed Wall Street’s estimates for both sales and profit for the latest quarter. The stock dropped by as much as 19 per cent in after-hours trading.

Does that matter to the company’s long-term future? Probably not. But it will likely take some of the shine off for the momentum traders, of whom there are likely a lot. And there were some troubling signs in the numbers at first glance — even if you assume that the analysts’ estimates were inflated (which they likely were). For one thing, the company’s tax rate was substantially higher than expected – 41 per cent instead of about 26 per cent – and costs were also higher than anticipated. Too much money being spent on projects like the lame addition of bookmarks to the Google toolbar perhaps?

One caveat: Even assuming that a majority of analysts are craven weasels (just kidding, guys) it is difficult for analysts to analyze a company that is not only growing at an incredible rate, but which refuses to provide any guidance on future results, or any details on current operations. That’s going to make future surprises even more likely.

Update:

As usual, some of the hysteria that is common with after-hours trading (when there is less volume and therefore more volatility) dissipated on Wednesday, but Google’s stock was still down almost 10 per cent at one point in the morning. Not surprising, given the number of momentum traders that are riding this particular horse. Although UBS has downgraded the stock to “neutral” – in other words, closing the door after the horse has left the stable – Google’s explanation that the higher tax rate accounts for the bulk of the miss seems plausible. And the company has said it will provide more details on that kind of thing.

In the end, there’s no real smoking gun in these results for the Google bears – although my friend Paul Kedrosky notes that it’s worth asking why the tax rate was so much higher than expected. And whatever the answer to that question, Google’s “miss” serves as a healthy warning to investors. As the old saying goes, bulls make money and bears make money, but pigs often get slaughtered.