Unbundling of Music in Digital Channels

Article: Bye Bye Bundles: The Unbundling of Music in Digital Channels. By Anita Elberse. Journal of Marketing (forthcoming)

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Abstract

"Fueled by digital distribution, unbundling is prevalent in many information industries. What is the effect of this unbundling on sales? And what bundle characteristics drive this effect? I empirically examine these questions in the context of the music industry, using data on weekly digital-track, digital-album, and physical-album sales for all titles released by a sample of over 200 artists. I analyze sales dynamics from January 2005 to April 2007—a period in which the share of unbundled units jumped from roughly one-third to two-thirds of total unit sales. My modeling framework, a system of an "album-sales" and a "song-sales" equation estimated using the seemingly unrelated regression method, explicitly accounts for the interaction between sales for the bundle and its components. I find that revenues decrease significantly as digital downloading becomes more prevalent because consumers switch from buying bundles (albums) to cherry-picking their favorite components (songs) on those bundles. The number of items included in a bundle (a measure of its "objective" value) does not emerge as a significant moderator of this effect. Instead, I find that bundles with items that are more equal in their appeal and bundles offered by producers with a strong reputation suffer less from the negative impact of the shift to mixed bundling in online channels."