Danaher, Dhanasobhon, Smith and Telang (2010)
|Danaher, Dhanasobhon, Smith and Telang (2010)|
|Title:||Converting pirates without cannibalizing purchasers: The impact of digital distribution on physical sales and internet piracy|
|Author(s):||Danaher, B., Dhanasobhon, S., Smith, M. D., Telang, R.|
|Citation:||Danaher, B., Dhanasobhon, S., Smith, M. D., & Telang, R. (2010). Converting pirates without cannibalizing purchasers: the impact of digital distribution on physical sales and internet piracy. Marketing science, 29(6), 1138-1151.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|Linked by:||Danaher, Smith, Telang and Chen (2012)|
|About the Data|
|Data Description:||The paper uses NBCs withdrawal of content from the iTunes platform as a natural experiment to observe the effect of this "shock to supply" on levels of piracy among the content of NBC and a number of its competitor producers. The focus of the study is on the 4-week period around December 1st 2007 when the content was withdrawn and the 4-week period around September 9th 2008 when the content was reinstated.
This paper draws on two main secondary sources of data: Mininova BitTorrent tracker and Amazon Sales Rankings
The first of these is a survey of BitTorrent tracker files reported by Mininova.org as a proxy for piracy activity on the programs in the sample.
The piracy dataset contains the daily number of downloads for 5,200 unique episodes of television (corresponding to roughly 75 unique series) starting November 16, 2007. The data include the series name, season number, and episode number of each television program and the number of times that file was downloaded each day.
The study also controls for the network that owns the rights to the show, the genre of the show, and whether it is a series that is still producing new episodes (such as Heroes) or a “catalog” series (such as the original Star Trek).
This dataset was created from a larger dataset collected by monitoring all trackers posted to Mininova at the torrent level starting in November 2007, obtaining roughly 210,000 records per day and yielding dataset of over 68 million observations for 180,000 torrents.
The study also analyses piracy for television programming from the other major television networks — ABC, CBS, and Fox — as a control.
The second source of data is Amazon DVD sales rankings. Using existing research the study estimates the parameters of the relationship between Amazon.com sales rank and actual sales of the product.
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||No|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
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.
Main Results of the Study
The results of this study are:
- NBC’s decision to remove its content from the iTunes music store on December 1, 2007 caused an 11.2% increase in piracy of that content over and above any change experienced by competitor networks ABC, CBS, and Fox over the same period.
- This large jump in piracy (larger than the size of the iTunes market) is predicted by theory when there is a significant fixed cost to piracy but only a small (or no) variable cost. In other words, iTunes purchasers may avoid piracy because the fixed cost to learn to use BitTorrent (or the fixed moral/stigma cost of illegal behavior) makes piracy less attractive than iTunes.
- When the digital sales channel is not available, these individuals turn to piracy, pay the fixed cost and, owing to the seemingly low marginal costs of additional downloads, begin to consume much more content through piracy than they had previously purchased.
- When NBC removed their archived seasons of television from iTunes, we found no significant change in the Amazon.com sales rank for NBC’s DVD sales relative to the trend that we saw for non-NBC box sets. One possible interpretation of this finding is that digital downloads and DVD’s are simply not substitutes in the short term.
- Adding a digital distribution channel would not lead to a short-term displacement in DVD box set sales. A similar interpretation is that there is a fixed cost to digital viewing of television, and once a consumer has “gone digital” she is unlikely to come back.
Policy Implications as Stated By Author
These results should sound an alarm to content providers, because once the fixed cost of piracy is sunk it may be difficult to get pirates to return to legal options.
Coverage of Study
|Level of aggregation:||TV Episodes|
|Period of material under study:||2007-2008|
|Level of aggregation:||Company|
|Period of material under study:||2007-2008|