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Copyright Protection, Technological Change, and the Quality of New
Copyright Protection, Technological Change, and the Quality of New
Intro  assuring flow of creative works
Intro assuring flow of creative works
and revenue has plunged
and revenue has plunged
Ensuing Research
Ensuing Research
My Epiphany
My Epiphany
Industry view: the sky is falling
Industry view: the sky is falling
File sharing is not the only innovation
File sharing is not the only innovation
The current standard of empirical evidence
The current standard of empirical evidence
Hard problem
Hard problem
Three Separate Approaches
Three Separate Approaches
Roadmap
Roadmap
Welfare from Music
Welfare from Music
Dynamic Case
Dynamic Case
Album Depreciation for Major Artists
Album Depreciation for Major Artists
Dynamic Case
Dynamic Case
Approach #1: critics lists
Approach #1: critics lists
Rolling Stones 500 Best Albums (2004)
Rolling Stones 500 Best Albums (2004)
Splice together to create overall index, covering pre- and
Splice together to create overall index, covering pre- and
Data Validity
Data Validity
Concordance of Long Term Indices
Concordance of Long Term Indices
The Most Listed Albums of the 2000s, or How Cool Are You
The Most Listed Albums of the 2000s, or How Cool Are You
The lists are highly correlated: 250 albums account for two thirds of
The lists are highly correlated: 250 albums account for two thirds of
Splice Indices
Splice Indices
And voila: Index of vintage quality
And voila: Index of vintage quality
And voila: Index of vintage quality
And voila: Index of vintage quality
Approaches #2 and #3
Approaches #2 and #3
Data: Airplay
Data: Airplay
Data: Sales
Data: Sales
Depreciation in Sales Data
Depreciation in Sales Data
Empirical Approach
Empirical Approach
Regression approach description
Regression approach description
Random utility interpretation
Random utility interpretation
Flexible Depreciation Patterns
Flexible Depreciation Patterns
Airplay-Based Vintage Quality Index
Airplay-Based Vintage Quality Index
Ditto for Parametric Indices
Ditto for Parametric Indices
Certification-Based Vintage Quality Index (all media)
Certification-Based Vintage Quality Index (all media)
Tests
Tests
The Post-Napster Airplay-Based Sales Index Relative to Pre-Napster
The Post-Napster Airplay-Based Sales Index Relative to Pre-Napster
The Post-Napster Album Certification-Based Sales Index Relative to
The Post-Napster Album Certification-Based Sales Index Relative to
The Post-Napster Album Certification-Based Sales Index Relative to
The Post-Napster Album Certification-Based Sales Index Relative to
Bottom line
Bottom line
Discussion
Discussion
Cost Reduction
Cost Reduction
Changes on Supply Side
Changes on Supply Side
Promotion, Now
Promotion, Now
Changing media for musical discovery
Changing media for musical discovery
Which outlets
Which outlets
Distribution has changed too
Distribution has changed too
Entry barrier: change back from $10
Entry barrier: change back from $10
Indies Filling Void
Indies Filling Void
Label Examples
Label Examples
Indie Role by Decade
Indie Role by Decade
Also true among top sellers
Also true among top sellers
Changed Rewards for Artists
Changed Rewards for Artists
Conclusions
Conclusions
Conclusions, contd
Conclusions, contd
Backup slides
Backup slides
Controlling for Depreciation
Controlling for Depreciation
With airplay data, t=2004,,2008; v=1960,
With airplay data, t=2004,,2008; v=1960,
Series show vintages shares 2004-2008, when they are k-years old
Series show vintages shares 2004-2008, when they are k-years old
Concordance back to 1960
Concordance back to 1960
Vintage quality index
Vintage quality index
Resulting Airplay Index
Resulting Airplay Index
Any guesses
Any guesses
Next steps: understanding the increase in quality
Next steps: understanding the increase in quality

: Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music since Napster. : Joel Waldfogel. : Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music since Napster.pptx. zip-: 1263 .

Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music since Napster

Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music since Napster.pptx
1 Copyright Protection, Technological Change, and the Quality of New

Copyright Protection, Technological Change, and the Quality of New

Products: Evidence from Recorded Music since Napster

Joel Waldfogel University of Minnesota and NBER Media Economics Conference, Moscow October 27, 2011

2 Intro  assuring flow of creative works

Intro assuring flow of creative works

Appropriability begets creative works depends on both law and technology IP rights are monopolies granted to provide incentives for creation Harms and benefits Recent technological changes may have altered the balance File sharing makes it harder to appropriate revenue

3 and revenue has plunged

and revenue has plunged

4 Ensuing Research

Ensuing Research

Mostly a kerfuffle about whether file sharing cannibalizes sales Oberholzer-Gee and Strumpf (2006),Rob and Waldfogel (2006), Blackburn (2004), Zentner (2006), and more Most believe that file sharing reduces sales and this has led to calls for strengthening IP protection

5 My Epiphany

My Epiphany

Revenue reduction, interesting for producers, is not the most interesting question Instead: will flow of new products continue? We should worry about both consumers and producers

6 Industry view: the sky is falling

Industry view: the sky is falling

IFPI: Music is an investment-intensive business Very few sectors have a comparable proportion of sales to R&D investment to the music industry. Warner Music: piracy makes it more difficult for the whole industry to sustain that regular investment in breaking talent. RIAA: Our goal with all these anti-piracy efforts is to protect the ability of the recording industry to invest in new bands and new music

7 File sharing is not the only innovation

File sharing is not the only innovation

Compound experiment Costs of production, promotion, and distribution may also have fallen Maybe weaker IP protection is enough My empirical question: 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

8 The current standard of empirical evidence

The current standard of empirical evidence

Lennon and McCartney story "Somebody said to me, 'But the Beatles were anti-materialistic.' That's a huge myth. John and I literally used to sit down and say, 'Now, let's write a swimming pool.'"

9 Hard problem

Hard problem

Quantifying the volume of high-quality new music released over time is hard Some obvious candidates are non-starters # works released (but skew) # works selling > X copies (moving target) Estimate consumer surplus over time (But tendency to purchase has declined, independent of value to consumers)

10 Three Separate Approaches

Three Separate Approaches

Quality index based on critics best-of lists 2 indices based on vintage service flow Airplay by time and vintage Sales by time and vintage

11 Roadmap

Roadmap

Theory welfare from music Critic-based approach Data, validation, results Usage-based approaches Data, validation, results Discussion Changes in demand and supply, further puzzles

12 Welfare from Music

Welfare from Music

Static case (for music that already exists)

Buying regime: CS = A, PS=B,DWL=C Stealing regime: CS = A + B + C, PS=0, DWL=0 Static benefits of stealing outweigh costs

13 Dynamic Case

Dynamic Case

Suppose PS motivates supply and music depreciates (already know that music depreciates) Beatles +26 %/year Britney Spears -28%/year

14 Album Depreciation for Major Artists

Album Depreciation for Major Artists

These albums dont depreciate much

These albums depreciate a lot

14

From Rob and Waldfogel (2004)

artist

adjusted depreciation

Pleasantly surprised

Grew on me

Familiar before got it

Guessed right

Disappointed from start

Got tired of it

N

RED HOT CHILI PEPPERS

31.3%

30.0%

43.3%

26.7%

10.0%

0.0%

13.3%

30

BEATLES, THE

26.2%

25.9%

22.2%

33.3%

0.0%

0.0%

22.2%

27

JONES, NORAH

17.4%

35.3%

58.8%

11.8%

5.9%

11.8%

11.8%

17

U2

9.8%

18.8%

43.8%

18.8%

6.3%

6.3%

18.8%

16

LINKIN PARK

9.8%

37.0%

14.8%

29.6%

7.4%

7.4%

14.8%

27

DION, CELINE

9.7%

18.8%

0.0%

25.0%

12.5%

12.5%

31.3%

16

COLDPLAY

6.3%

25.0%

27.8%

27.8%

22.2%

0.0%

8.3%

36

2 PAC

1.9%

10.7%

25.0%

21.4%

7.1%

0.0%

42.9%

28

EMINEM

0.7%

22.9%

21.4%

21.4%

8.6%

0.0%

31.4%

70

SOUNDTRACK

0.0%

28.3%

23.9%

19.6%

6.5%

6.5%

23.9%

45

DOORS, THE

-1.2%

12.5%

12.5%

25.0%

12.5%

6.3%

37.5%

16

MATTHEWS, DAVE BAND

-5.2%

7.1%

19.0%

26.2%

14.3%

19.0%

26.2%

42

MOBY

-6.2%

5.9%

5.9%

47.1%

5.9%

17.6%

17.6%

17

MAYER, JOHN

-8.7%

31.3%

25.0%

18.8%

6.3%

6.3%

25.0%

16

NELLY

-17.2%

15.8%

21.1%

15.8%

5.3%

5.3%

31.6%

19

DESTINY'S CHILD

-20.2%

0.0%

6.7%

20.0%

20.0%

6.7%

46.7%

15

50 CENT

-20.5%

17.4%

21.7%

17.4%

8.7%

0.0%

39.1%

23

'N SYNC

-20.7%

4.8%

0.0%

4.8%

4.8%

14.3%

71.4%

21

AGUILERA, CHRISTINA

-21.6%

10.3%

0.0%

10.3%

13.8%

10.3%

55.2%

29

BLINK 182

-23.0%

6.7%

13.3%

6.7%

6.7%

26.7%

46.7%

15

CAREY, MARIAH

-23.5%

0.0%

10.5%

26.3%

5.3%

31.6%

26.3%

19

BACKSTREET BOYS

-24.5%

0.0%

0.0%

17.6%

5.9%

11.8%

64.7%

17

DMX

-24.8%

10.5%

5.3%

21.1%

10.5%

10.5%

52.6%

19

SPEARS, BRITNEY

-28.3%

0.0%

3.4%

6.9%

3.4%

3.4%

82.8%

29

JA RULE

-48.4%

6.7%

0.0%

26.7%

0.0%

26.7%

40.0%

15

JAY-Z

-52.4%

17.4%

0.0%

8.7%

17.4%

26.1%

34.8%

23

VARIOUS

-86.9%

10.0%

0.0%

5.0%

5.0%

10.0%

45.0%

15

618

15 Dynamic Case

Dynamic Case

Suppose PS motivates supply and music depreciates (already know that music depreciates) Beatles +26 %/year Britney Spears -28%/year Then in next period, CS=PS=DWL=0 Key question: ebbed flow of new products?

16 Approach #1: critics lists

Approach #1: critics lists

Want index of the number of works released each year surpassing a constant threshold Use critics retrospective best-of lists E.g. Number of albums on a best-of-the-decade list from each year Retrospective: to be on list, albums quality must exceed a constant threshold

17 Rolling Stones 500 Best Albums (2004)

Rolling Stones 500 Best Albums (2004)

18 Splice together to create overall index, covering pre- and

Splice together to create overall index, covering pre- and

post-Napster era.

19 Data Validity

Data Validity

Do indices pick up major eras? Larkin (2007): The 60s will remain, probably forever, the single most important decade for popular music. Do indices track each other? Are critical responses relevant to demand (and therefore economic welfare)?

20 Concordance of Long Term Indices

Concordance of Long Term Indices

All correlations exceed 0.7, except with Zagat

21 The Most Listed Albums of the 2000s, or How Cool Are You

The Most Listed Albums of the 2000s, or How Cool Are You

Lots of concordance

Significant sales; not economically irrelevant

rank

artist

album

number of lists

year

RIAA cert

1

Radiohead

Kid A

32

2000

P

2

Arcade Fire

Funeral

31

2004

3

Strokes, The

Is This It

29

2001

G

4

OutKast

Stankonia

29

2000

3xP

5

Wilco

Yankee Hotel Foxtrot

28

2002

G

6

Jay-Z

The Blueprint

25

2001

2xP

7

Flaming Lips, The

Yoshimi Battles the Pink Robots

21

2002

G

8

LCD Soundsystem

Sound of Silver

20

2007

9

West, Kanye

The College Dropout

20

2004

2xP

10

Stevens, Sufjan

Illinois

20

2005

11

TV on the Radio

Return to Cookie Mountain

19

2006

12

Modest Mouse

The Moon & Antarctica

19

2000

G

13

White Stripes, The

Elephant

19

2003

P

14

Daft Punk

Discovery

19

2001

G

15

Interpol

Turn On the Bright Lights

18

2002

16

Eminem

The Marshall Mathers LP

18

2000

9xP

17

Radiohead

In Rainbows

18

2007

G

18

Beck

Sea Change

17

2002

G

19

Bon Iver

For Emma, Forever Ago

17

2007

20

Broken Social Scene

You Forgot It in People

16

2002

21

Spoon

Kill the Moonlight

15

2002

22

Knife, The

Silent Shout

15

2006

23

White Stripes, The

White Blood Cells

15

2001

G

24

Animal Collective

Merriweather Post Pavillon

15

2009

25

Madvillain

Madvillainy

15

2004

22 The lists are highly correlated: 250 albums account for two thirds of

The lists are highly correlated: 250 albums account for two thirds of

the 2390 best of list entries

23 Splice Indices

Splice Indices

Plot ?s

24 And voila: Index of vintage quality

And voila: Index of vintage quality

25 And voila: Index of vintage quality

And voila: Index of vintage quality

Index is falling prior to Napster

Post-Napster constancy is, if anything, a relative increase

26 Approaches #2 and #3

Approaches #2 and #3

Measure of vintage quality based on service flow/consumer decision Sales and airplay Idea: if one vintages music is better than anothers, its superior quality should generate higher sales or greater airplay through time, after accounting for depreciation

27 Data: Airplay

Data: Airplay

(Describing data first makes empirical approach easier to exposit) For 2004-2008, observe the annual share of aired songs originally released in each prior year. From Mediaguide 2000, over 1 million spins/year Lots of data: smooth, precise

Direct evidence of depreciation

28 Data: Sales

Data: Sales

Coarse sales data: RIAA certifications See when sales pass thresholds, know when released Gold=0.5 million, Platinum=1 million, multi-platinum=X million. 17,935 album certs; 4428 single certs Covers most of music sales Tracks known patterns Sparse < 1970

29 Depreciation in Sales Data

Depreciation in Sales Data

Older albums sell less Sales data are noisier

30 Empirical Approach

Empirical Approach

Goal: derive an index of the importance of the music from each vintage Define st,v = share of vintage v music in the sales or airplay of music in period t. Observe s for V vintages and T years For a given year t, s varies across vintages for two reasons Depreciation Variation in vintage quality

31 Regression approach description

Regression approach description

Regress ln(st,v) on age dummies, vintage dummies. Allow flexible depreciation pattern Then: vintage dummies are index of vintage quality

32 Random utility interpretation

Random utility interpretation

Consumers choose between vintages No outside good (literally in airplay) in sales, dont believe music is falling in utility relative to outside good Ut,v = f(t-v) + ?v + ?t,v with extreme-value error ln(st,v) ln(st,0) = f(t-v) + ?v. Normalization: ln(st,0) = constant Regression of ln(st,v) on age and vintage dummies recovers the evolution of mean utility with vintage

33 Flexible Depreciation Patterns

Flexible Depreciation Patterns

34 Airplay-Based Vintage Quality Index

Airplay-Based Vintage Quality Index

35 Ditto for Parametric Indices

Ditto for Parametric Indices

36 Certification-Based Vintage Quality Index (all media)

Certification-Based Vintage Quality Index (all media)

Noisier. But similar pattern.

37 Tests

Tests

Following Napster, is vintage quality Above or below previous level? Relative to various starting points Above or below previous trends? Relative to various starting points

38 The Post-Napster Airplay-Based Sales Index Relative to Pre-Napster

The Post-Napster Airplay-Based Sales Index Relative to Pre-Napster

Levels and Trends

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

Post-Napster Level

-0.2231

0.4875

0.4822

0.3790

0.0032

(0.2340)

(0.3277)

(0.2346)*

(0.1126)**

(0.1944)

Level since 1995

-0.8151

(0.2814)**

Level since 1990

-0.9484

(0.1873)**

Level since 1980

-1.2359

(0.0899)**

Level since 1970

-0.9806

(0.1944)**

Post-Napster Trend

0.3223

0.2391

0.2239

0.2032

(0.1350)*

(0.0747)**

(0.0393)**

(0.0241)**

Trend since 1995

-0.2165

(0.0827)*

Trend since 1990

-0.1170

(0.0301)**

Trend since 1980

-0.0767

(0.0094)**

Trend since 1980

-0.0595

(0.0043)**

Constant

2.8434

2.9479

3.0866

3.4772

3.5977

2.9097

2.9942

3.2408

3.5293

(0.1013)**

(0.1007)**

(0.0948)**

(0.0644)**

(0.1705)**

(0.1005)**

(0.0985)**

(0.0822)**

(0.0680)**

Observations

48

48

48

48

48

48

48

48

48

R-squared

0.02

0.17

0.38

0.81

0.37

0.13

0.25

0.60

0.81

39 The Post-Napster Album Certification-Based Sales Index Relative to

The Post-Napster Album Certification-Based Sales Index Relative to

Pre-Napster Levels and Trends

(1)

(2)

(3)

(4)

(5)

(6)

(7)

Post-Napster Level

0.0446

0.1806

0.1852

0.1752

(0.0807)

(0.1217)

(0.0937)

(0.0615)**

Level since 1995

-0.1633

(0.1105)

Level since 1990

-0.2109

(0.0831)*

Level since 1980

-0.3918

(0.0635)**

Post-Napster Trend

0.0564

0.0401

0.0464

(0.0452)

(0.0259)

(0.0167)**

Trend since 1995

-0.0341

(0.0303)

Trend since 1990

-0.0173

(0.0122)

Trend since 1980

-0.0155

(0.0052)**

Constant

-0.9879

-0.9607

-0.9176

-0.7267

-0.9668

-0.9519

-0.8745

(0.0418)**

(0.0451)**

(0.0480)**

(0.0518)**

(0.0440)**

(0.0469)**

(0.0525)**

Observations

41

41

41

41

41

41

41

R-squared

0.01

0.06

0.15

0.50

0.04

0.06

0.20

40 The Post-Napster Album Certification-Based Sales Index Relative to

The Post-Napster Album Certification-Based Sales Index Relative to

Pre-Napster Levels and Trends (all recorded music products)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Post-Napster Level

0.0801

0.3515

0.2817

0.2383

(0.1008)

(0.1411)*

(0.1112)*

(0.0752)**

Level since 1995

-0.3257

(0.1262)*

Level since 1990

-0.3024

(0.0963)**

Level since 1980

-0.4745

(0.0752)**

Post-Napster Trend

0.1629

0.1099

0.0964

0.0938

(0.0525)**

(0.0299)**

(0.0186)**

(0.0151)**

Trend since 1995

-0.0923

(0.0340)**

Trend since 1990

-0.0422

(0.0133)**

Trend since 1980

-0.0263

(0.0053)**

Trend since 1970

-0.0233

(0.0036)**

Constant

0.3248

0.3791

0.4256

0.6411

0.3630

0.3940

0.4987

0.6695

(0.0504)**

(0.0515)**

(0.0556)**

(0.0614)**

(0.0480)**

(0.0502)**

(0.0531)**

(0.0651)**

Observations

40

40

40

40

40

40

40

40

R-squared

0.02

0.17

0.22

0.53

0.22

0.27

0.44

0.56

41 Bottom line

Bottom line

No evidence that vintage quality has declined Some evidence that it has increased Hard to know what it might otherwise have been Puzzle: why do high quality products continue to be produced despite collapse in effective copyright protection?

42 Discussion

Discussion

File sharing reduced demand, but the quantity of new works seems not to have decline. How?

?

43 Cost Reduction

Cost Reduction

44 Changes on Supply Side

Changes on Supply Side

Costs of creation, promotion, and distribution have all fallen Creation Succession of cost-reductions Reel-to-reel tape (?1948), DAT (?1985), Pro-Tools & Garageband (since Napster) Promotion/musical discovery Old days: Radio and payola $60 million payments to radio in 1985, when recording industry profits were $200 million $150,000 to promote hit single

45 Promotion, Now

Promotion, Now

Infinite Dial study

46 Changing media for musical discovery

Changing media for musical discovery

47 Which outlets

Which outlets

48 Distribution has changed too

Distribution has changed too

Old days: physical product, trucks, billing Now, can get song available at iTunes Music Stores for $10 (or less) CDBaby, TuneCore, etc.

49 Entry barrier: change back from $10

Entry barrier: change back from $10

50 Indies Filling Void

Indies Filling Void

Leeds (2005) - independent labels appear to have lower costs, allowing them to subsist on smaller sales: Unlike the majors, independent labels typically do not allocate money to producing slick videos or marketing songs to radio stations. An established independent can turn a profit after selling roughly 25,000 copies of an album; success on a major label release sometimes doesn't kick in until sales of half a million.

51 Label Examples

Label Examples

Majors: Indies (selected artists): 4AD (Pixies, National) SST (Husker Du) Matador (Pavement, Interpol) Merge (Arcade Fire, Spoon)

52 Indie Role by Decade

Indie Role by Decade

Difference between the 2000s and the previous two decades is significant at the 5 percent level in a one-sided test (p-val =0.04).

53 Also true among top sellers

Also true among top sellers

54 Changed Rewards for Artists

Changed Rewards for Artists

More readily available music stimulates demand for live performance Shapiro and Varian (1999), Connolly and Krueger (2006), Mortimer, Nosko, and Sorenson (2010) Potentially why artists dont go back to law school

55 Conclusions

Conclusions

New data for documenting effects on supply following Napster based on behavior vs critics No reduction and possibly an increase - in consequential new products despite reduction in demand Reduced costs, changed industrial organization (majors vs indies)

56 Conclusions, contd

Conclusions, contd

Far from clear we need stronger IP protection here Caveats: Not clear what relevance results have for other kinds of works (e.g. movies are still pretty expensive to make) Dont know the counter-factual Next step: look under the hood of recording industry

57 Backup slides

Backup slides

58 Controlling for Depreciation

Controlling for Depreciation

Compare different vintages market shares in years that occur equally long after the respective releases Define s(k,v)=st,v|t-v=k = share of vintage v music among airplay or sales k years later (t=v+k)

59 With airplay data, t=2004,,2008; v=1960,

With airplay data, t=2004,,2008; v=1960,

.t,

So s(0,v) can be calculated for v=2004,,2008. showing evolution of vintage quality, 04-08 Music thats one year old in 2004 was released in 2003, so s(1,v) can be calculated for v=2003,,2007 showing evolution of vintage quality 03-07 s(k,v) can be calculated for 2004-k,,2008-k

60 Series show vintages shares 2004-2008, when they are k-years old

Series show vintages shares 2004-2008, when they are k-years old

Current music share falls 2004-2008

1-yr-old musics share rises 2003-4, falls to 08

2-year-old musics share rises 2002-4, then falls

3-year-old musics share rises 2001-4, then falls

For any vintage, we have 4 estimates of % change in vintage quality

61 Concordance back to 1960

Concordance back to 1960

62 Vintage quality index

Vintage quality index

For each vintage between 1960 and 2004, there are five separate series s(k,v) covering the vintage 4 percent changes Calculate the average percent change for each vintage, accumulate them

63 Resulting Airplay Index

Resulting Airplay Index

64 Any guesses

Any guesses

65 Next steps: understanding the increase in quality

Next steps: understanding the increase in quality

Perhaps cheaper experimentation allows us to find better music (Tervio, 2009) Have been collecting data on volume of new releases from independent and major labels Indie share among successful Average career age among indie and major releases Aggressive experimentation by indies vs majors

Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music since Napster
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