Music Consumption Decisions with Non-Durable Streaming Options

Abstract

Consumers are increasingly purchasing non-durable music products, consumed through a streaming bundle delivered via a subscription model. In this paper we examine how individual preferences influence a consumer's music format decision. We analyze consumption differences between durable retail music products and non-durable streaming music subscription bundles. A user's preferred format depend on the intensity of their music interests, scope of interests, and how quickly a song's utility depreciates. Our empirical analysis shows that streaming consumers have greater depreciation rates than the traditional distribution of terrestrial radio, and that digital sales decline at a slower rate than does the usage of the streaming version. Our theory model and empirical evidence suggest that consumers prefer a non-durable subscription over a durable purchase of information goods when they have higher depreciation rates or a greater scope of music interests. Using simulation, we identify the ideal consumption format for consumers based on their individual listening preferences.