“Selling less of more?” The impact of digitization on record companies

In this paper we use data from a survey of 151 French record companies to test the “long tail theory” at the level of the firm. More specifically, we test whether, following the “selling less of more” principle coined by Anderson (2006), record companies that have adapted to digitization (at various levels: artists’ scouting, distribution and promotion) release more new albums without having higher overall sales. We construct a production function in which the output is produced from conventional inputs of labor and capital, as well as inputs that are more specific to the recorded music industry. We consider two types of output: a commercial output (albums sales) and a creative output (number of new albums released). We show that labels that have adapted to digitization are more efficient in respect of creative output, but that there is no effect of adaptation to digitization on the commercial output, which is consistent with the predictions of the long tail theory.

[1]  Patrick Waelbroeck,et al.  An Economist's Guide to Digital Music , 2004, SSRN Electronic Journal.

[2]  Rajiv D. Banker,et al.  The new productivity paradox , 2003, Commun. ACM.

[3]  Rob Toulson,et al.  Innovation In Music , 2014 .

[4]  Robert F. Easley,et al.  The MP3 open standard and the music industry's response to Internet piracy , 2003, CACM.

[5]  S. Liebowitz.  Testing File-Sharing's Impact by Examining Record Sales in Cities , 2006 .

[6]  Felix Oberholzer-Gee,et al.  The Effect of File Sharing on Record Sales: An Empirical Analysis , 2007, Journal of Political Economy.

[7]  Robert Burnett,et al.  The Global Jukebox , 1988 .

[8]  R. Peterson,et al.  Cycles in Symbol Production: The Case of Popular Music , 1975 .

[9]  Erik Brynjolfsson,et al.  Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales , 2011, Manag. Sci..

[10]  P. Bishop,et al.  The efficiency of museums: a stochastic frontier production function approach , 2003 .

[11]  D. Giles,et al.  Superstardom in the US popular music industry revisited , 2006 .

[12]  Robert D. Tollison,et al.  Consumer Choice and the Popular Music Industry: A Test of the Superstar Theory , 2002 .

[13]  Kar Yan Tam,et al.  Mobile data service fuels the desire for uniqueness , 2006, CACM.

[14]  François Moreau,et al.  Internet and the ‘Long Tail versus superstar effect’ debate: evidence from the French book market , 2012 .

[15]  Peter J. Alexander.  New technology and market structure: Evidence from the music recording industry , 1994 .

[16]  Andrew Burke,et al.  The dynamics of product differentiation in the British record industry , 1995 .

[17]  Erik Brynjolfsson,et al.  The Longer Tail: The Changing Shape of Amazon’s Sales Distribution Curve , 2010 .

[18]  A. Baker.  A model of competition and monopoly in the record industry , 1991 .

[19]  Pierre Benghozi,et al.  The Long Tail: Myth or Reality? , 2010 .

[20]  Pravin K. Trivedi,et al.  Microeconometrics Using Stata , 2009 .

[21]  Anita Elberse.  Should You Invest in the Long Tail , 2008 .

[22]  J. H. Gapinski.  The Economics of Performing Shakespeare , 1984 .

[23]  Anita Elberse,et al.  Superstars and Underdogs: An Examination of the Long Tail Phenomenon in Video Sales , 2007 .

[24]  David Godes,et al.  Using Online Conversations to Study Word-of-Mouth Communication , 2004 .

[25]  Rahul Telang,et al.  Information Discovery and the Long Tail of Motion Picture Content , 2014, MIS Q..

[26]  Mervi Taalas.  Generalised Cost Functions for Producers of Performing Arts – Allocative Inefficiencies and Scale Economies in Theatres , 1997 .

[27]  S. Liebowitz.  Research Note - Testing File Sharing's Impact on Music Album Sales in Cities , 2008, Manag. Sci..

[28]  Jeffrey M. Woodbridge.  Econometric Analysis of Cross Section and Panel Data , 2002 .

[29]  David Throsby.  An Artistic Production Function: Theory and an Application to Australian Visual Artists , 2006 .

[30]  Alan T. Sorensen,et al.  Information and the Skewness of Music Sales , 2009, Journal of Political Economy.

[31]  G. Prem Premkumar,et al.  Alternate distribution strategies for digital music , 2003, CACM.

[32]  Paul Belleflamme,et al.  Digital Piracy: Theory , 2010, SSRN Electronic Journal.

[33]  J. Avery,et al.  The long tail. , 1995, Journal of the Tennessee Medical Association.