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.
Highlights
The development of digital distribution channels has raised many important questions for marketers
Summary Statistics: The simplest possible analysis of this quasi-experiment is a comparison of means before and after the removal of NBC content from iTunes on December 1
We list some very high-level summary statistics and ask if the average number of daily downloads of an NBC episode is greater in the two weeks after December 1 than in the two weeks before
Summary
The development of digital distribution channels has raised many important questions for marketers. For television and movie studios two of the more important questions are (1) can paid digital distribution channels serve as an attractive alternative to consumption through (“free”) digital piracy channels and (2) will digital distribution cannibalize DVD box set sales?. With respect to the second question, there is ample evidence in the business press that DVD retailers feel that studios’ distribution through digital channels will significantly cannibalize sales of DVDs. For example, in late 2006 after Disney finalized a deal to distribute its movies through iTunes, press reports claim that a Wal-Mart executive visited Hollywood studios to tell them that “it will retaliate against them for selling movies on Apple’s iTunes [store]” (Arango 2006). This report goes on to note that Wal-Mart, which makes up an estimated 40% of studios’ DVD sales, made good on this threat by sending “‘cases and cases’ of DVDs back to Disney.” Target, which makes up an estimated 15% of DVD sales, sent a letter to studios threatening them not to follow Disney into digital distribution (McBride and Marr 2006), and reportedly after sending this letter “ordered its stores to take down a multitude of internal signs steering customers to Disney products,” and replaced Disney’s end-cap promotional displays with displays for Disney’s competitors (Menn 2006)
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