Digitization and the Quality and Quantity of New Music, Books, and
Movies Joel Waldfogel
University of Minnesota and NBER WIPO, October 15, 2015
Introduction
• Digitization and media industries: a two-part story – Bad news on demand side
• Napster, BitTorrent, etc – Cost reduction on supply side
• Reduced costs of production, distribution, promotion • …along with “nobody knows” effect • Revolutionary effects on recorded music, books,
movies, television,… – Lots of new products, many of which are
consequential
My additional goals today
• While piracy is interesting/important, we should focus more research energy on whether the supply of new products remains robust
• Rethink which evidence addresses whether copyright is fulfilling its function
• Are we experiencing a crisis? – Evidence on music, books, movies, & television
• Copyright research needs more and better data – Data availability woes necessitate flexibility
Outline
• Music quality since Napster: rising or falling? • Why? • Then revisit the relevant questions in book,
motion picture, and other creative sectors • …in the order of the evolution of my
understanding
Digitization in music, round 1
• The standard music paper motivation since ’99: “the sky is falling!”
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19941996199820002002200420062008
$ m
illio
ns
RIAA Total Value of US Shipments, 1994-2009
total
digital
physical
Research Response
• Mostly a kerfuffle about whether file sharing cannibalizes sales
• Surprisingly hard question to answer » Oberholzer-Gee and Strumpf (2006),Rob and Waldfogel
(2006), Blackburn (2004), Zentner (2006), and more
• …but most believe that file sharing reduces sales
My Epiphany
• Revenue reduction, interesting for producers, is not the most important question
• Instead: will flow of new products continue? – (We should worry about both consumers and producers)
• RIAA, IFPI: reduced investment will lead to an audio stone age
File sharing is not the only innovation
• “Compound experiment” – Costs of production, promotion, and distribution
have also fallen – Maybe weaker IP protection is enough
• What has happened to the “quality” of new products since Napster? – Contribute to an evidence-based discussion on
adequacy of IP protection in new economy
Hard problem: assessing quality/service flow of work over time • 2 approaches: • Critics’ best of lists
– E.g. Number of albums on a best-of-the-decade list from each year
– Retrospective: to be on list, album’s quality must exceed a constant threshold
• Usage information by time and vintage
Rolling Stone’s 500 Best Albums (2004)
• Regression:
• Plot θ’s
0.0
2.0
4.0
6R
ollin
g St
one
1960 1970 1980 1990 2000 2010Year
from 2004 album listRolling Stone Index
BETMSN.comNOWQ
Acclaimed AlbumsAcclaimed Songs
American SongwriterAustin Town Hall
Best Ever
BetterPropagandaBillboard
Blender songs
Boom Box, TheBoot, TheCokeMachineGlowComplexComplexConsequence of SoundConsequence of SoundCreative LoafingDaily CalifornianDecibelDelusions of AdequacyeMusicEntertainment WeeklyFACTGhostlyGigwiseGigwiseGlideGuardian, TheHipHopDXIrish TimesKitsap SunThe Line of Best FitLostAtSeaLost At SeaMetacriticMetromix DenverMixmagmusicOMHNMENMENoise CreepNational Public RadioNPROneThirtyBPMonethirtybpmThe Onion A.V. ClubPaste
Pitchfork 1990s (03)
Pitchfork 1990s (99) PitchforkPitchforkPopdosePopdoseResident AdvisorResident AdvisorRhapsodyRhapsodyRock's Back PagesRolling StoneRolling Stone
Rolling StoneRate Your Music
SlantSlantSpinnerSpinnerStateStylusStylus DecadeThe BoomboxThe GuardianThe SunThe Sunday TimesThe TimesThe WordTimes, TheTiny Mix TapesTrebleTrebleUncutUnder the RadarVirgin MediaWord, The
Zagat
020
4060
80In
dex
1960 1970 1980 1990 2000 2010Year
Index Availability
“Splice” together to create overall index, covering pre- and post-Napster era.
And voila: Index of vintage quality
.51
1.5
22.
53
1960 1970 1980 1990 2000 2010year
coef top of 95% intervalbottom of 95% interval
weightedAlbum Year Dummies and Napster
Index is falling prior to Napster
Post-Napster constancy is, if anything, a relative increase
Approach #2
• Measure of vintage “quality” based on service flow/consumer decision – Sales and airplay
• Idea: if one vintage’s music is “better” than another’s, its greater appeal should generate higher sales or greater airplay through time, after accounting for depreciation
Data
• Airplay 2004-2008 by vintage • Sales 1970-2010, by vintage
– From RIAA certifications
Regression approach
• Define st,v = share of vintage v music in the sales or airplay of music in period t. – For a given year t, s varies across vintages because
of depreciation and variation in vintage quality • Regress ln(st,v) on age dummies, vintage
dummies. – Allow flexible depreciation pattern
• Then: vintage dummies are index of vintage “quality”
Resulting Airplay Index
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.52
2.5
1 9 6 0 1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 1 0V i n ta g e
In d e x to p o f 9 5 % in te rv a lb o tto m o f 9 5 % i n t e rv a l
F le x ib le N o n p a r a m e t ricA irp la y -B a se d In d ex
Sales-Based Index
-2-1
01
Inde
x
1960 1970 1980 1990 2000 2010Vintage
Flexible NonparamericSales-Based Index
Bottom line
• No evidence that vintage quality has declined • More compelling evidence that it has
increased • Hard to know what it might otherwise have
been • Big contrast to IFPI/RIAA view • Puzzle: why continued quality despite revenue
collapse?
Fundamental features of creative products
• “nobody knows anything” (Caves/Goldman) – Hard to predict success at time of investment – Perhaps 10 percent succeed
• Traditionally, it has been expensive to “experiment” (Tervio) – Must bring a product to market to learn whether
it will succeed – Music: ≈$1 million using traditional means – So bet on a few artists with ex ante promise
Along comes digitization
• (…and demand: piracy) • …and supply
– Obvious effects on production and distribution • Recording, distribution are now inexpensive
– Promotion too? • Traditionally, radio is a bottleneck • Now Internet radio and online criticism
• It has become cheaper to “experiment” – Do we end up discovering more artists with ex post
value?
How could quality improve? “Model” inspired by Goldman (“nobody knows”)
• Label forms estimate of album marketability q’ as truth + error: q’=q + ϵ
• Bring a product to market if q’> T. • Cost reduction trumps piracy, so that on
balance, digitization reduces T, raising the number of projects that can be brought to market.
• Big question: what happens to the volume of “good” work available to consumers?
Suppose marketability were predictable
• Then reduction in T brings more products • But they are of modest quality: T’ < q < T
With unpredictability
• Release all products with expected quality above T’
• Result: more products with quality > T
• Release of products with less ex ante promise leads to a greater number of products with ex post success/value
Is this explanation right? Some questions:
• More new products? – …including “indies” with less ex ante promise?
• Do consumers have ways to learn about a proliferation of new products? – Changing roles of traditional radio, Internet, and
critics • Do the products with less ex ante promise – e.g.
indie artists who would not have been released before digitization – account for a rising share of ex post success?
Illustrative Anecdote: Arcade Fire’s The Suburbs
• Released by indie Merge Records August, 3, 2011 • Critical acclaim
– Metascore=87 (top 5%) • Little conventional airplay
– Not on BB Airplay Chart – But big on Internet radio
• Success – Sold >0.5 million copies – Best Album Grammy for 2011
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030
000
4000
0lis
tene
rs
01jul2010 01oct2010 01jan2011 01apr2011 01jul2011ddate
Arcade Fire – Ready to Start on Last.fm
Answers
• Growth in releases? – Yes. Nielsen: 35k in 2000, 100k in 2010
• Changing information environment • Ex ante promise and ex post success
Answers
• Growth in releases? • Changing information environment • Ex ante promise and ex post success
Changing Information Environment
• Traditional radio – BB airplay – top 75 songs by week
• 3,900 listings per year
– But only about 300 distinct artists
• Traditional vs Internet radio – Compare BB list with last.fm top 420 songs of the
week in 2006 – Little overlap – 10 percent
Top 2006 BB Airplay Artists not on Last.fm Weekly Top 420
ARTIST BB airplay index
MARY J. BLIGE 14.3 BEYONCE 12.0 NE-YO 10.3 CASSIE 9.8 CHRIS BROWN 9.8 YUNG JOC 8.2 SHAKIRA 6.9 LUDACRIS 6.0 CHAMILLIONAIRE 5.7 AKON 5.2
ARTIST listeners DEATH CAB FOR CUTIE 5,200,000 COLDPLAY 5,200,000 RADIOHEAD 4,700,000 MUSE 3,900,000 ARCTIC MONKEYS 3,000,000 THE POSTAL SERVICE 2,800,000 THE BEATLES 2,400,000 SYSTEM OF A DOWN 2,300,000 BLOC PARTY 2,100,000 NIRVANA 1,900,000 THE ARCADE FIRE 1,900,000
Top Artists on Last.fm in 2006 without BB Airplay
Takeaway: Internet radio allows promotion for artists with less promotion on traditional radio
Second, growth in criticism
• Much of it online
Rolling StoneAlternative PressSpin
Q MagazineEntertainment Weekly
All Music GuideMojo
The A.V. ClubPitchfork
Uncut
PopMatters
Drowned In SoundUnder The Radar
020
000
4000
060
000
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010
0000
Cum
ulat
ive
Met
acrit
ic R
evie
ws
2000
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1970 1980 1990 2000 2010Founding Year
sources founded since 1980 with over 2000 reviews in MetacriticGrowth in Reviews
Success and promotional channels
• What’s happening to the role of traditional airplay among successful artists?
• What’s happening to the role of critics?
Learning from critics vs radio Of commercial successes:
0.1
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me
an
of
da
ir
1 99 1
1 99 2
19 9
3
1 99 4
1 99 5
19 9
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1 99 9
2 00 0
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2 00 2
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9
2 01 0
S h a re o f B B 2 0 0 w ith B il lb oa rd A irp la y
Declining share with airplay, especially since 2000
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ea
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me
ta
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
S h are o f B B 20 0 w ith M e tac r i t ic R ev ie w s
By contrast: increasing share with critical attention
Answers
• Growth in releases? • Changing information environment • Ex ante promise and ex post success
Ex ante promise and ex post success
• Do artist with less ex ante promise – who would not have made it to market prior to digitization – now achieve sales success?
• Specifically, do indies account for a growing share of sales?
0.1
.2.3
.4m
ean
of d
indi
e
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indie Share among Billboard 200
0.0
5.1
.15
.2m
ean
of d
indi
e
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indie Share among Billboard 25
“Even the losers get lucky sometimes”
Summing up music
• Digital disintermediation provides possible explanation for increased “quality”
• Given unpredictability, more “experimentation” leads to discovery of additional “good” music – Ex ante loser become ex post winners
• Much of which would not have come to market before digitization
What about other cultural products?
• Books, motion pictures, television,… • Of each, ask the questions (when possible):
– More products? – Ways to learn about new products? – Changing sales concentration – Growing success of ex ante “losers”? – Are the new vintages “good”?
Books
• Growth in new products, “ecosystem”?
• Yes, especially self-published e-books, supported by diffusion of tablets & e-readers
0
50'000
100'000
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300'000
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450'000
2005 2006 2007 2008 2009 2010 2011 2012 2013
new self-published books
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.2.3
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01jul2010 01jul2011 01jul2012 01jul2013ddate
ebook reader tableteither
Share of Adults with Tablets and eReaders
Commercial success of ex ante losers
• From Storming the Gatekeepers, Waldfogel and Reimers (2013) 0
.2.4
.6sh
are
01jan2009 01jan2010 01jan2011 01jan2012 01jan2013 01jan2014date
romanceShare of Bestseller Listings Originally Self-Published
0.0
5.1
.15
.2sh
are
01jan2009 01jan2010 01jan2011 01jan2012 01jan2013 01jan2014date
Share of Bestseller Listings Originally Self-Published
Movies
• Different? – More costly: $100m for an average MPAA title
• An important US export industry – “Jobs, jobs, jobs”
Digitization and cost reduction in motion pictures
• Production – Digital cameras that are cheap and good
• Distribution – Digital sales (iTunes, Netflix, Amazon,…)
• Promotion – Lots of movies reviewed online + user-generated
reviews • ….raising the possibility of 1) new movies that 2)
might be discovered by, and of interest to, consumers.
• True?
Production
• Digital cameras introduced around 2000 – Widely adopted by even major productions ca
2009 – Arri Alexa, Red One, Canon 5D, Canon 70D – Prices: $250,000, $50,000,…,$2,000 – Creates opportunity for indie film makers
(Attack of the digital clones)
0
.2.4
.6.8
1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Camera Types for Theatrical Releases
mean of arri mean of panamean of moviecam mean of aatonmean of alexa mean of redmean of canon mean of other
Major titles are steady, even declining
0
5010
015
020
025
0m
paar
elea
ses
1980 1990 2000 2010year
Major MPAA Releases
Source: MPAA
…but huge growth in overall production
Movies with IMDb pages as of August 2013
Growth in small-scale theatrical release
0
200
400
600
800
1990 1995 2000 2005 2010year/vintage
MPAA movies 500+ screenstheatrical releases reviewed at Metacritic
Theatrical Release
Sources: MPAA, Box Office Mojo, Metacritic
050
010
0015
00
1990 1995 2000 2005 2010year/vintage
Theatrical releases Streaming Netflix avail in '13Streaming at Amazon
Online vs Theatrical
In 2013, over 1000 vintage-2010 movies available on streaming Netflix, over 1,200 at Amazon Instant
More movies “released” to digital streaming services
Sources: IMDb, Instatwatcher.com, Box Office Mojo
Product discovery
• Significant growth in review provision and availability
• A range of “professionals” plus amateurs
Pro review availability goes deeper
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.6.8
10
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.6.8
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1990 1995 2000 2005 2010 1990 1995 2000 2005 2010
1990 1995 2000 2005 2010 1990 1995 2000 2005 2010
1 2
3 4
mea
n of
dcr
itic
1=top 250, 2=250-500, 3=500-750,4=750-100
Graphs by group
Growth in Critic Coverage by Group
Reviews of selected movies at IMDb
Many movies have user ratings at IMDb
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ovie
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ith IM
Db
Use
r Rat
ings
2000 2005 2010 2015year
User-rated Movies at IMDb by Vintage
Source: IMDb, movies with 5+ user ratings
“Argo” example: wide range of “pros”
0
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.1.1
5.2
Den
sity
0 5 10 15 20Log Alexa Traffic Rank
vertical lines at Rolling Stone, indiewireAlexa Traffic Ranks of IMDb Argo Reviewers
588 reviews and the Alexa ranks of their sources. Median rank: 1.6 million
Do independent movies succeed?
• What is “independent”? – “I know it when I see it”
• Independent Spirit
– Limited appeal • Indiewire
– Not produced by major studio
Indies are growing share of box office and DVD revenue
.1
.2.3
.4.5
1990 1995 2000 2005 2010 2015year
Box Office DVD listings
Independent Share of Theatrical and DVD Revenue
…and a growing share of what’s available through various channels
• Growth in independent movies by many measures
0.2
.4.6
.81
1980 1990 2000 2010year
Netflix streaming Amazon Instanton television Top 50 Vudu by Vintage
as of August 2013Independent Share of Available Movies by Vintage
Are the new movies “good”
• Two kinds of approaches, based on critics and usage
Rotten Tomatoes 0
2040
6080
100
1993
1994
1995
1996
1997
1998
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2000
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2012
87-90, 90-95, 95Rotten Tomatoes Best
mean of low mean of mediummean of high
Absolute number of movies with high grades has risen a lot
Independent movies account for growing share of RT-top movies
.2
.4.6
.81
Not
Maj
or
1980 1990 2000 2010year
Share of RT Top Movies from Independent Studios
Btw: pro and amateur opinions are positively correlated
0
2040
6080
100
2 4 6 8 10User Rating
Metascore Median bands
Critics and Lay Opinion at Metacritic
Are new vintages “good”? Usage evidence
• As before: • Regress ln(st,v) on age dummies, vintage
dummies. – Allow flexible depreciation pattern
• Then: vintage dummies are index of vintage “quality”
Movies have been getting better
-1-.5
0.5
1P
aram
eter
est
imat
e
1960 1970 1980 1990 2000 2010year
Extensive TV ListingsMovie Vintage and Service Flow
Mixed result: no apparent increase in vintage service flow during most recent growth, since 2005
Television
• Growth in products?
• Yes: more “draws”
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t of x
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TV Series at IMDb by Premiere Year
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Rated TV Series at IMDb by Premiere Year
Falling traditional-network share of acclaimed shows
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ition
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by series vintageTraditional Broadcast Network Share of Metacrtic top 25
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IMDb ratingsTop Shows by Vintage and Source
mean of traditional mean of othermean of premium
The best new shows are “good” compared to history
6570
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85av
erag
e m
etas
core
1995 2000 2005 2010 2015premiere year
Average of Top 10 Metascores
The Golden Age of television is now
Where else?
• Video games? • Photography?
– Democratization of means of production 0
24
68
Imag
es (m
illion
s)
1960 1980 2000 2020Vintage
Creative and Editorial Images at Getty by Vintage
Conclusion
• While new digital technology brought threats to creative industries (piracy), it also brought opportunities
• Huge growth in new products and distribution • And “new products” make up large and
growing share of successful • Threats to revenue are real, but
– no sign of diminished output – and works are better
Public Policy
• Rights holders are concerned about declining revenue from some sources – Understandable
• Copyright exists to provide incentives for creative activity
• Despite revenue performance in recorded music and newspapers, and fears in movies, there is no crisis in creative activity
Underlying works
• “Piracy on the High C’s..”, with Rob, JLE 2006 • “Copyright…, JLE 2012 • “And the Bands Played on..” NBER volume 2015 • “Storming the Gatekeepers…” with Reimers, IEP
2015 • “Cinematic Explosion…” forthcoming, JIE • Digital Renaissance, Princeton Univ Press, 2016? • “Even the Losers…” with Aguiar, forthcoming, IEP • “Quality Predictability…” with Aguiar