Online music and films

Online music and films Christian Helmers 14 April 2015 1 / 26

Introduction Audio and video on demand market has exploded over past 10 years Distinguish between downloads and streaming Result of technological change (broadband) Different business models: Free (advertisement): Youtube (2005) Subscription: Netflix (1997/2008), Hulu (2007) Fremium: Last.fm (2002), Pandora (2010), Spotify (2008) Pay per view: Amazon (Prime) (2006), Comcast (xfinity), Vudu (2007), itunes (2006) Online streaming not limited to computer (set-top box, portable media players etc.) 2 / 26

Introduction Streaming reduced search costs increased accessibility reduced entry costs Questions: 1 Digital sales and pay-per-use/subscription streaming substitutes? 2 Optimal pricing strategies for streaming services 3 Impact of free streaming on digital sales 4 Impact of free streaming on sales distribution Focus on Impact of free streaming and digital sales 3 / 26

Last.fm 4 / 26

Netflix 5 / 26

Music sales 6 / 26

The impact of online music and films Free online videos and digital music sales substitutes? Potential effects: Displacement effect (free music substitute for sales of music especially since marginal costs of sampling for digital music close to zero) Sampling reduces search costs Promotional effect through network effects Sampling and promotion existed before digital era (radio, MTV) Potential determinants: Sampling and promotion important because music is an experience good and uniform prices provide little information on quality Little control over availability of music on P2P/filehosters Streaming service undertake substantial efforts in classifying content (e.g. Music Genome Project) 7 / 26

YouTube & music sales (Kretschmer and Peukert, 2014) Is the availability of music on YouTube correlated with music sales? Compare sales of daily top 300 songs/albums across countries (Australia, Austria, Canada, France, Germany, Italy, Spain, Switzerland, UK, US) as function of availability of YouTube videos. Majority of music videos blocked in Germany due to dispute between German collecting society (monopolist) and YouTube since April 2009 (60% of most viewed videos blocked in Germany vs.9% in the U.S.) Can only measure intensity of treatment how many videos blocked 8 / 26

YouTube & music sales (Kretschmer and Peukert, 2014) Results: Sampling/promotional effect offsets displacement effect without indirect compensation (royalties, compensation from youtbe etc.) Sampling/promotional effect particularly effective if sampling only reveals part of relevant information 9 / 26

The impact of (restricted) access to online music and videos? (Bourreau et al., 2014) Impact of pick-your-own-price (PYOP) music downloads on related music sales Radiohead s PYOP release of Rainbows and impact on subsequent Rainbows as well as other Radiohead s albums Evidence that Radiohead s PYOP release created spillovers (market expansion effect through increased attention) But external validity unclear (cannibalization in case of Nine Inch Nail s The Slip) Source: Bourreau et al. (2014) 10 / 26

YouTube & music sales (Hiller and Kim, 2014) Is the availability of music on youtube correlated with music sales? Use variation introduced by removal of Warner Music content from YouTube in 2009 Compare weekly sales of top 200 billboard songs/albums & Google Trends artist keyword search before/after removal of Warner content 11 / 26

YouTube & music sales (Hiller and Kim, 2014) Results: No promotional effect on sales/artist searches YouTube and piracy substitutes Displacement effect seems affect mostly superstars 12 / 26

Does YouTube promote superstars? (George and Peukert, 2014) 13 / 26

Does YouTube promote superstars? (George and Peukert, 2014) 14 / 26

Does YouTube promote superstars? (George and Peukert, 2014) YouTube lowers entry costs for artists YouTube makes stars more accessible (on demand) through zero distribution costs What is the net effect? Use again unavailability of YouTube videos in Germany and compare to Austria Focus on overlap in top 100 pop charts between U.S. and Germany/Austria 15 / 26

Does YouTube promote superstars? (George and Peukert, 2014) Results: Youtube promotes U.S. music in Europe (displaces of local content) Youtube increases chart turnover Evidence for superstar effect but effect not strong 16 / 26

Access to online music 17 / 26

Access to streaming 18 / 26

The impact of (restricted) access to online music and videos? We have discussed the potential link between piracy and availability of streaming Cost of accessing copyrighted movies have pushed Netflix to create original content (e.g. House of Cards and Orange Is the New Black) Broader evidence that supply of movies has increased to large extent driven by independent productions (Waldvogel, 2013) Threat to incumbents from streaming (rather than piracy)! Source: Waldvogel (2013) 24 / 26

What have we learnt? Online streaming of music and video has grown to be (most important) way of consuming music and video Different business models co-exist Clash with copyright Impact of streaming on sales? Mixed evidence on displacement vs sampling/promotion effect Stronger evidence suggesting superstar effect Impact of ubiquitous availability on consumption patterns? 25 / 26

References Bourreau M., P. Dogan, and S. Hong (2014): Making money by giving it for free: Radiohead s pre-release strategy for In Rainbows, mimeo George L.M. and C. Peukert (2014): YouTube Decade: Cultural convergence in Recorded Music, NET Institute WP 14-11. Hiller S.R. and J.H. Kim (2013): Online music, sales displacement, and internet search: evidence from YouTube, mimeo. Kretschmer T. and C. Peukert (2014): Video killed the radio star? Online music videos and digital music sales, CEP DP 1265. Waldvogel J. (2013): Cinematic Explosion: Movies, Gatekeepers, and Product Discovery in the Digital Era, mimeo. 26 / 26