Do Artists Benefit from Online Music Sharing?

43 Pages Posted: 10 Apr 2004

See all articles by Ram D. Gopal

Ram D. Gopal

University of Connecticut - Department of Operations & Information Management

Sudip Bhattacharjee

University of Connecticut - Department of Operations & Information Management; US Census Bureau

G. L. Sanders

SUNY at Buffalo - School of Management; State University of New York (SUNY) - Management Science and Systems

Abstract

Music is an information good, and more specifically, an experience good, whose true value is realized only after its consumption. At its fundamental form, artists create (or produce) the music that consumers pay to listen. Digital technologies and network based sharing/distribution mechanisms have created tremendous opportunities and challenges for producers and consumers of such goods. This paper models the economics of online music sharing and addresses the fundamental question: who benefits? The model incorporates economic and technological incentives to sample, and analyzes the effect of consumers' potential purchasing and pirating decisions. The analysis reveals several key insights. The revenue impact will be more closely related to the intrinsic value of the music to consumers, as these technologies enable users to discover the true value of music more easily. Contrary to conventional wisdom, lowering the cost to sample music will propel more consumers to purchase music online, as the total cost of evaluation and acquisition decreases. Attempts to prevent sampling will be counter productive in the long run. Reducing the cost to sample may encourage some consumers to pirate music; but it also enhances the legitimate customer base by decreasing the total cost of music acquisition. This, along with increasing enforcement aimed at individual consumers and effective pricing schemes, will enable artists to effectively leverage the emerging technologies. The model also sheds light on the conflicting opinions by the artist community on the impact of sharing technologies. We find that sharing technologies erode the superstar phenomenon widely prevalent in the music business. Extensive empirical investigations, based on surveys and Billboard Ranking Charts, lend support to the economic model and validate the key results. Implications from this study are generally applicable to buyers and sellers of other similar digital experience goods.

Keywords: Superstar, experience good, online music sharing, sampling, piracy, economics of music

JEL Classification: C15, D83, L15, L82, 033, Z1

Suggested Citation

Gopal, Ram D. and Bhattacharjee, Sudip and Sanders, G. Lawrence, Do Artists Benefit from Online Music Sharing?. Journal of Business, Forthcoming. Available at SSRN: https://ssrn.com/abstract=527324

Ram D. Gopal

University of Connecticut - Department of Operations & Information Management ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Sudip Bhattacharjee (Contact Author)

University of Connecticut - Department of Operations & Information Management ( email )

2100 Hillside Road, U-1041
Storrs, CT 06269-1041
United States

HOME PAGE: http://users.business.uconn.edu/sbhattacharjee

US Census Bureau ( email )

4600 Silver Hill Road
D.C., WA 20233
United States

G. Lawrence Sanders

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

State University of New York (SUNY) - Management Science and Systems ( email )

United States

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