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!”

02000400060008000

10000120001400016000

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

0.5

11

.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

10

000

2000

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

8000

010

0000

Cum

ulat

ive

Met

acrit

ic R

evie

ws

2000

-201

1

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

.2.3

me

an

of

da

ir

1 99 1

1 99 2

19 9

3

1 99 4

1 99 5

19 9

6

19 9

7

19 9

8

1 99 9

2 00 0

20 0 1

2 00 2

2 00 3

2 00 4

20 0

5

2 00 6

2 00 7

20 0

8

20 0

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

0.1

.2.3

.4m

ea

n o

f d

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

150'000

200'000

250'000

300'000

350'000

400'000

450'000

2005 2006 2007 2008 2009 2010 2011 2012 2013

new self-published books

0.1

.2.3

.4

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

0

.2.4

.6.8

10

.2.4

.6.8

1

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

16

0018

0020

0022

0024

0026

00M

ovie

s w

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

.05

.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

1999

2000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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”

020

040

060

080

01,

000

coun

t of x

198019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

TV Series at IMDb by Premiere Year

01,

000

2,00

03,

000

coun

t of x

198019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

Rated TV Series at IMDb by Premiere Year

Falling traditional-network share of acclaimed shows

0.2

.4.6

.81

mea

n of

trad

ition

al

198019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

by series vintageTraditional Broadcast Network Share of Metacrtic top 25

0.2

.4.6

.81

198019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

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

7580

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