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

42 Pages Posted: 16 Apr 2009 Last revised: 19 Jun 2014

Brett Danaher

Chapman University - The George L. Argyros School of Business & Economics

Samita Dhanasobhon

Carnegie Mellon University

Michael D. Smith

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: March 3, 2010

Abstract

The availability of digital channels for media distribution has raised several 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 analyzing its impact on demand through BitTorrent piracy channels and the Amazon.com DVD store.

To do this we collect two large datasets from Mininova and Amazon.com documenting levels of piracy and DVD sales for both NBC and other major networks’ content around these events. We analyze this 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 11.2% increase in the demand for pirated content. This is roughly equivalent to an increase of 49,000 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 their digital distribution channel on iTunes.

Keywords: digital distribution, channel conflict, cannibalization, iTunes, DVD

JEL Classification: L1, M2, M3

Suggested Citation

Danaher, Brett and Dhanasobhon, Samita and Smith, Michael D. and Telang, Rahul, Converting Pirates Without Cannibalizing Purchasers: The Impact of Digital Distribution on Physical Sales and Internet Piracy (March 3, 2010). Available at SSRN: https://ssrn.com/abstract=1381827 or http://dx.doi.org/10.2139/ssrn.1381827

Brett Danaher

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

Samita Dhanasobhon

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Michael D. Smith (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://www.heinz.cmu.edu/~mds

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

4800 Forbes Ave
Pittsburgh, PA 15213-3890
United States
412-268-1155 (Phone)

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