rojimboo: There is however some empirical evidence of similar measures as DRM, that affect the demand for piracy and lower the inequity between the pirated good and the legit good, that being legislative measures in France to reduce torrenting, that piracy does indeed result in lost sales in the music industry, as explained in the OP.
Darvin: I was surprised when I read 20-25%, though at the time of my response I elected not to address those numbers directly. That said, I did want to check them out. There are two things that catch my attention.
The shape of the graph immediately caught my attention. The divergence between the treatment and control groups began before the passage of the bill, widened substantially after the bill passed, but then narrowed over time to return to values similar to those prior to the bill's passage. I'd be interested in seeing later data points to see whether the values stabilized, continued to converge, or began to diverge again. It's like a story got cut off right before the climax and you don't know how it's going to end.
I...don't really observe what you seem to observe :) . Looking at the Google Trends Index, the divergence began once the bill was presented to the National Assembly. Before that they were France and the control group were said to be statistically indistinguishable. The divergence grows, stabilises and remains at a certain level.
Darvin: Secondly, the data set is restricted to digital distribution on a specific platform (iTunes). The authors remark that overall music sales in France were in decline at the time, and the the increase in iTunes sales did not reverse this trend. The authors conclude that although overall sales did decrease, they would have decreased more had Hadopi not been enacted. However, this presumes that a relative increase in sales in one class (digital, in this case) is indicative of a relative increase in sales in
all classes. I do not believe this is a valid presumption; it
may be the case, but it's just as possible that the additional digital sales displaced physical product sales (ie, my "zero sum" hypothesis). Without looking at numbers for the entire music industry, you just can't say.
They acknowledge this limitation themselves, but there is some literature to back them up, that mentions former pirates likelier to purchase from digital retailers rather that physical ones (quoted for everyone):
With respect to the second question (will HADOPI cause increased consumption of legal music and will this consumption occur in digital or physical channels), as noted above, the literature seems to suggest that consumers are strongly tied to either the digital or physical channel such that if a consumer is forced to stop consuming digital piracy, the literature suggests that they are more likely to switch to other digital channels than they are to return to CD purchases (see, for example, Danaher et al. 2010, Hu and Smith 2011). Because of this, we focus on the impact of HADOPI on digital music sales, reflecting our belief that if HADOPI impacts individuals‘ ability to pirate online, they are more likely to turn to digital music channels than they are to go back to physical purchases of CDs
However, since nearly all prior literature indicates that filesharing does indeed displace sales of physical music, it is a limitation of this paper that we are only able to examine iTunes sales data as it is very possible that HADOPI could affect physical sales as well. Unfortunately, physical retail sales data were not available to us at the time of this study and we suggest that our methodology could be applied to these data as well. Data from the Syndicat National de L‘edition Phonographique (SNEP) indicate that 25% of French music sales in the first 3 quarters of 2011 were digital10, with physical making up the remainder. Thus, our study asks the question of whether a law like HADOPI can stimulate sales of one form of media (music) in one channel (iTunes), and as such likely will not capture the total impact of the law.
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The genre analysis adds credibility to their conclusions.
We also note that the effect of HADOPI was larger for more heavily pirated genres like Rap and smaller for less pirated genres like Christian music or Jazz, suggesting that the increase in sales is likely caused by a reduction in piracy. It is worth noting we observed this sales pattern for each of the four majors when analyzed separately, providing some support our assumption that HADOPI may have had the same effect on the independent labels
If only they would have looked at the PC software industry too, and actually got data from digital distributors and physical retailers - that would have been such an interesting and relevant paper for us. If only the world was ideal, sigh.
rojimboo: According to Jain(2008), “Many industry analysts see copying as one of the key threats to profitability and innovation. They claim that copying leads to higher prices for legitimate users, lower profits for the firms, reduced new product innovation and is generally harmful to society .” The paper continues to examine the impact of illegal copying of software and other similar intellectual properties on firms’ prices, profits, and quality choices, even when there are no network effects and the market is saturated. I think the main threat to innovation is the lack of courage to try something new and - maybe - lose customers. It's all about the profit. Stick with known genre, adjust the graphics change the number behind the title, rinse and repeat. The good/new ideas or concepts I saw in the last ten years are almost exclusively brought up by small relatively unknows teams. 
