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Piracy or promotion? The impact of broadband Internet penetration on DVD sales

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  • Smith, Michael D.
  • Telang, Rahul
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    Abstract

    The Internet provides copyright holders with new sales and promotional channels for their content, while also providing consumers with new opportunities to illegally obtain free copies of this content. Unfortunately, disentangling these two effects is extremely difficult. In this paper we attempt to disentangle these two effects by applying fixed effects and first difference models to a new dataset quantifying changes in broadband Internet penetration and DVD sales at a local level from 2000 to 2003. We then compare our results to those reported in Liebowitz (2008), who uses similar models in a similar time period on a similar product category: music CDs. Unlike Liebowitz, who finds a strong negative impact of broadband penetration on music sales, our results show that increased broadband penetration leads to a significant increase in DVD sales. Using the most conservative results, 9.3% of the $14.1 billion increase in DVD sales during our study period can be attributed to increased broadband penetration. One interpretation of these results is that the difference arises from differences in the ability to pirate these two types of content: while Internet music piracy was easy and rampant from 2000 to 2003, Internet movie piracy was difficult and of generally low quality in this time period. If this interpretation is true it would suggest that, in the absence of piracy, the Internet has an overall strong positive impact on media sales.

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    Bibliographic Info

    Article provided by Elsevier in its journal Information Economics and Policy.

    Volume (Year): 22 (2010)
    Issue (Month): 4 (December)
    Pages: 289-298

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    Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:289-298

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    Web page: http://www.elsevier.com/locate/inca/505549

    Related research

    Keywords: Information goods Internet penetration Movie promotion DVD sales;

    References

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    1. Hui Kai-Lung & Png Ivan, 2003. "Piracy and the Legitimate Demand for Recorded Music," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-24, September.
    2. Mortimer, Julie Holland, 2007. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence From The Introduction of DVDs," Scholarly Articles 3425914, Harvard University Department of Economics.
    3. Zentner, Alejandro, 2006. "Measuring the Effect of File Sharing on Music Purchases," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 63-90, April.
    4. Brynjolfsson, Erik & Smith, Michael D. & Yu, (Jeffrey) Hu, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Working papers 4305-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Sudip Bhattacharjee & Ram D. Gopal & Kaveepan Lertwachara & James R. Marsden & Rahul Telang, 2007. "The Effect of Digital Sharing Technologies on Music Markets: A Survival Analysis of Albums on Ranking Charts," Management Science, INFORMS, vol. 53(9), pages 1359-1374, September.
    6. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(06), pages 814-823, December.
    7. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
    8. Brett Danaher & Samita Dhanasobhon & Michael D. Smith & Rahul Telang, 2010. "Converting Pirates Without Cannibalizing Purchasers: The Impact of Digital Distribution on Physical Sales and Internet Piracy," Marketing Science, INFORMS, vol. 29(6), pages 1138-1151, 11-12.
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    Cited by:
    1. Brett Danaher & Michael D. Smith & Rahul Telang, 2013. "Piracy and Copyright Enforcement Mechanisms," NBER Chapters, in: Innovation Policy and the Economy, Volume 14, pages 25-61 National Bureau of Economic Research, Inc.
    2. Handke, Christian, 2012. "Digital copying and the supply of sound recordings," Information Economics and Policy, Elsevier, vol. 24(1), pages 15-29.
    3. Liu, Yizao & Lopez, Rigoberto, 2013. "The Impact of Social Media on Consumer Demand: The Case of Carbonated Soft Drink Market," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 148913, Agricultural and Applied Economics Association.

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