Intellectual Property Strategy and the Long Tail: Evidence from the Recorded Music Industry
44 Pages Posted: 29 Oct 2014 Last revised: 2 Dec 2018
Date Written: October 27, 2014
Digitization has impacted firm profitability in many media industries by lowering the cost of copying and sharing creative works. I examine the impact of digital rights management (DRM) - a prevalent strategy used by firms in media industries to address piracy concerns - on music sales. I exploit a natural experiment, where different labels remove DRM from their entire catalogue of music at different times, to examine whether relaxing an album's sharing restrictions increases sales. Using a large sample of albums from all four major record labels, I find that removing DRM increases digital music sales by 10% but relaxing sharing restrictions does not impact all albums equally. It increases the sales of lower-selling albums (i.e., the "long tail") significantly (30%) but does not benefit top-selling albums. These results suggest that the optimal strength of copyright depends on the distribution of products in firms' portfolio.
Keywords: copyright, technology, long tail, intellectual property, digitization
JEL Classification: O3, O33, O34
Suggested Citation: Suggested Citation