That's in large part because consumers' willingness to pay for "complements" like concerts and merchandise goes up as the price of music and movies falls, and because consumers are exposed to many more artists when prices are low or nonexistent.
Even if the music industry was shrinking, though, the authors point out that creativity has not declined—which suggests that weaker copyright can still promote the "Progress" sought by the Founders.
“We do not yet have a full understanding of the mechanisms by which file-sharing may have altered the incentives to produce entertainment,” conclude the authors. “However, in the industry with the largest purported impact—music—consumer access to recordings has vastly improved since the advent of file-sharing. Since 2000, the number of recordings produced has more than doubled. In our view, this makes it difficult to argue that weaker copyright protection has had a negative impact on artists' incentives to be creative.”
The music industry doesn't buy the argument. According to international trade group IFPI, "Live performance earnings are generally more to the benefit of veteran, established acts, while it is the younger developing acts, without lucrative live careers, who do not have the chance to develop their reputation through recorded music sales." Thus, recorded music sales remain important.
And IFPI's 2010 "Digital Music Report" (PDF) makes the case that artists are producing less in states with high piracy rates. "In France, there has been a striking fall in the number of local repertoire albums released in recent years," says the report. "In the first half of 2009, 107 French-repertoire albums were released, 60 per cent down on the 271 in the same period of 2003." (This number appears to involve only major labels, however, and cheap digital tools mean that much of the music production today is done without a major label.)