Converting Pirates Without Cannibalizing Purchasers: The Impact of Digital Distribution on Physical Sales and Internet Piracy

Abstract

The availability of digital channels for media distribution has raised many 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 we analyze the impact of this shock on demand through BitTorrent piracy channels and the Amazon.com DVD store. To do this we collected two large data sets from Mininova.com and Amazon.com, documenting levels of piracy and DVD sales for both NBC and other major networks' content around these events. We analyze these 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 11.4% increase in the demand for NBC's pirated content. This is roughly equivalent to an increase of 48,000 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 its digital distribution channel on iTunes.Internet, piracy, digital distribution, distribution channels, cannibalization

"Online Copyright Enforcement, Consumer Behavior, and Market Structure"

“…Because German licensed online consumption channels were scarce in 2011, consumers had only limited opportunities to switch to licensed digital consumption of movies after the shutdown of kino.to. Given the importance of licensed alternatives to reduce piracy (Danaher et al, 2010(Danaher et al, , 2013, the results of these anti-piracy interventions may well be very different in an environment with more and better licensed offers available to consumers. In particular, they may be more effective in converting consumers from unlicensed to licensed consumption.…”

Digital Music Consumption on the Internet: Evidence from Clickstream Data

“…While the literature on digital music is still scarce, some findings related to other digital media suggest that this is indeed a crucial question that needs to be tackled. For the case of television content, Danaher et al (2010) find that the lack of availability of legal consumption channels is indeed causally associated with increasing piracy. 6 3 Data and Variables…”

“…We consider individuals aged between 10 and 75. The focus of our study is to analyze the relationship between several channels of digital music consumption, and in particular on the causal effect of illegal downloading and legal streaming on 6 Although they find that piracy depresses international box-office revenues, Danaher and Waldfogel (2012) obtain results consistent with Danaher et al (2010) in the case of US box-office revenues. For another study related to movie piracy, see Peukert and Claussen (2012).…”

Optimal Timing of Sequential Distribution: The Impact of Congestion Externalities and Day-and-Date Strategies

“…Researchers who study the economics of digital piracy identify how consumers, when they pirate, often still face costs that are akin to price. For example, pirates are subject to government imposed penalties, search and learning costs, and moral costs (Connor and Rumelt 1991, August and Tunca 2008, Danaher et al 2010, Lahiri and Dey 2013. Because would-be pirates are an important source of revenue to studios, the more general pricing problem they face must also account for the incentive compatibility constraints of consumers considering…”