Impact of Digital Distribution in the Publishing Market: A Synthetic Control Approach

Abstract

Digitization has dramatically transformed the landscape of content distribution. Yet, little is known about the disruption caused by digitization in one of the most important content products: books. In particular, there has been scant research on how ebooks influence the existing print channel, especially in non-US markets. The goal of the current study is to fill this gap and provide a comprehensive understanding of the economic impacts of the ebook channel on the print book channel. We argue that in less mature ebook markets, consumers may not have yet developed clear preferences with respect to the new digital channel vis-a-vis the existing print channel, thereby resulting in a lesser degree of segmentation. This in turn can lead to more severe cross-channel competition and cannibalization by the ebook channel, compared to mature ebook markets. Specifically, we address the following research questions: (1) Does the introduction of an ebook cannibalize the sales of its print version? and (2) If so, is the degree of cannibalization affected by ebook distribution strategies (i.e., ebook discount rates and ebook release timing) and book characteristics (i.e., the number of pages and reading time)? By employing the synthetic control approach to analyze actual sales and revenue data obtained from a large book retailer, we found that, on average, an ebook release decreases weekly print sales by 1.34%. Interestingly, the total dollar revenue, including both print books and ebooks, slightly increases after an ebook release, indicating that the additional revenue from the new ebook demand outweighs the loss of print book revenue due to cannibalization. We also found that 1) a higher discount rate for an ebook has no statistically significant impact on the degree of cannibalization, while delaying ebook releases mitigates the cannibalization effect; and 2) books with a longer reading time tend to experience more severe cannibalization, whereas the number of pages does not influence the degree of cannibalization. Our findings are robust to a series of sensitivity analyses. The contributions and managerial implications of these findings are discussed.