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Converting Pirates Without Cannibalizing Purchasers: The Impact of Digital Distribution on Physical Sales and Internet Piracy

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Listed:
  • Brett Danaher

    () (Wellesley College, Wellesley, Massachusetts 02481)

  • Samita Dhanasobhon

    () (Heinz College, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

  • Michael D. Smith

    () (Heinz College, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

  • Rahul Telang

    () (Heinz College, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

The availability of digital channels for media distribution has raised many important questions for marketers, notably, whether digital distribution channels will cannibalize physical sales and whether legitimate digital distribution channels will dissuade consumers from using (illegitimate) digital piracy channels. We address these two questions using the removal of NBC content from Apple's iTunes store in December 2007, and its restoration in September 2008, as natural shocks to the supply of legitimate digital content, and we analyze the impact of this shock on demand through BitTorrent piracy channels and the Amazon.com DVD store. To do this we collected two large data sets from Mininova.com and Amazon.com, documenting levels of piracy and DVD sales for both NBC and other major networks' content around these events. We analyze these data in a difference-in-difference model and find that NBC's decision to remove its content from iTunes in December 2007 is causally associated with an 11.4% increase in the demand for NBC's pirated content. This is roughly equivalent to an increase of 48,000 downloads a day for NBC's content and is approximately twice as large as the total legal purchases on iTunes for the same content in the period preceding the removal. We also find evidence of a smaller, and statistically insignificant, decrease in piracy for the same content when it was restored to the iTunes store in September 2008. Finally, we see no change in demand for NBC's DVD content at Amazon.com associated with NBC's closing or reopening of its digital distribution channel on iTunes.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormksc:v:29:y:2010:i:6:p:1138-1151
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    File URL: http://dx.doi.org/10.1287/mksc.1100.0600
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    References listed on IDEAS

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    Cited by:

    1. Luis Aguiar & Joel Waldfogel, 2015. "Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales?," NBER Working Papers 21653, National Bureau of Economic Research, Inc.
    2. Wojciech Hardy & Michał Krawczyk & Joanna Tyrowicz, 2014. "Internet piracy and book sales: a field experiment," Working Papers 2014-23, Faculty of Economic Sciences, University of Warsaw.
    3. Bourreau, Marc & Doğan, Pınar & Hong, Sounman, 2015. "Making money by giving it for free: Radiohead’s pre-release strategy for In Rainbows," Information Economics and Policy, Elsevier, vol. 32(C), pages 77-93.
    4. Raphaël Suire & Thierry Pénard & Sylvain Dejean, 2010. "La gratuité est-elle une fatalité sur les marchés numériques ? Une étude sur le consentement à payer pour des offres de contenus audiovisuels sur internet," Économie et Prévision, Programme National Persée, vol. 194(3), pages 15-32.
    5. Michael Arnold & Éric Darmon & Sylvain Dejean & Thierry Pénard, 2014. "Graduated Response Policy and the Behavior of Digital Pirates: Evidence from the French Three-strike (Hadopi) Law," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201401, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    6. Brett Danaher & Michael D. Smith & Rahul Telang, 2014. "Piracy and Copyright Enforcement Mechanisms," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 25-61.
    7. repec:clr:wugarc:y:2013:v:39i:3p:405 is not listed on IDEAS
    8. Michele Boldrin & David K. Levine, 2013. "The Case against Patents," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 3-22, Winter.
    9. Joëlle Farchy & Mathilde Gansemer & Jessica Petrou, 2013. "E-book and book publishing," Chapters,in: Handbook on the Digital Creative Economy, chapter 31, pages 353-364 Edward Elgar Publishing.
    10. repec:eee:iepoli:v:40:y:2017:i:c:p:41-47 is not listed on IDEAS
    11. Brett Danaher & Michael D. Smith & Rahul Telang & Siwen Chen, 2014. "The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence from an Event Study in France," Journal of Industrial Economics, Wiley Blackwell, vol. 62(3), pages 541-553, September.
    12. Danaher, Brett & Smith, Michael D., 2014. "Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 1-8.
    13. Brett Danaher & Samita Dhanasobhon & Michael D. Smith & Rahul Telang, 2015. "Understanding Media Markets in the Digital Age: Economics and Methodology," NBER Chapters,in: Economic Analysis of the Digital Economy, pages 385-406 National Bureau of Economic Research, Inc.
    14. Jonathan Dörr & Thomas Wagner & Alexander Benlian & Thomas Hess, 2013. "Music as a Service as an Alternative to Music Piracy?," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 5(6), pages 383-396, December.
    15. Poort, Joost & Leenheer, Jorna & van der Ham, Jeroen & Dumitru, Cosmin, 2014. "Baywatch: Two approaches to measure the effects of blocking access to The Pirate Bay," Telecommunications Policy, Elsevier, vol. 38(4), pages 383-392.
    16. Eyal Carmi & Gal OEstreicher-Singer & Arun Sundararajan, 2010. "Is Oprah Contagious? Identifying Demand Spillovers in Product Networks," Working Papers 10-18, NET Institute.
    17. Aguiar, Luis & Martens, Bertin, 2016. "Digital music consumption on the Internet: Evidence from clickstream data," Information Economics and Policy, Elsevier, vol. 34(C), pages 27-43.
    18. Michel Clement & Arvind Rangaswamy & Srikant Vadali, 2012. "Consumer Responses to Legal Music Download Services that Compete with Illegal Alternatives," Service Science, INFORMS, vol. 4(1), pages 4-23, March.
    19. Paul Stepan, 2013. "Urheberrecht und Digitalisierung - Eine Zwischenbilanz," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 39(3), pages 405-420.
    20. Smith, Michael D. & Telang, Rahul, 2010. "Piracy or promotion? The impact of broadband Internet penetration on DVD sales," Information Economics and Policy, Elsevier, vol. 22(4), pages 289-298, December.
    21. Emmi Martikainen, 2014. "Does file-sharing reduce DVD sales?," Netnomics, Springer, vol. 15(1), pages 9-31, July.
    22. Ralf Dewenter & Justus Haucap & Tobias Wenzel, 2012. "On File Sharing With Indirect Network Effects Between Concert Ticket Sales and Music Recordings," Journal of Media Economics, Taylor & Francis Journals, vol. 25(3), pages 168-178, September.
    23. Paul Stepan, 2013. "Film," Chapters,in: Handbook on the Digital Creative Economy, chapter 35, pages 399-408 Edward Elgar Publishing.
    24. Peukert, Christian & Aguiar, Luis & Claussen, Jörg, 2016. "Catch Me if You Can: Effectiveness and Consequences of Online Copyright Enforcement," Annual Conference 2016 (Augsburg): Demographic Change 145490, Verein für Socialpolitik / German Economic Association.
    25. Scott Hiller, R., 2016. "Sales displacement and streaming music: Evidence from YouTube," Information Economics and Policy, Elsevier, vol. 34(C), pages 16-26.

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