The Quality of Recorded Music Since Napster: Evidence Based on The

Home , Merge Records, Napster, Not Your Muse, Sound of Silver, The Balance, The Line of Best Fit

Digitization and the Music Industry

Joel Waldfogel Conference on the Economics of Information and Communication Technologies Paris, October 5-6, 2012

AND

And the Bands Played On: Digital Disintermediation and the Quality of New Recorded Music

Intro – assuring flow of creative works

• Appropriability – may beget creative works – depends on both law and technology • IP rights are monopolies granted to provide incentives for creation – Harms and benefits • Recent technological changes may have altered the balance – First, file sharing makes it harder to appropriate revenue…

…and revenue has plunged

RIAA Total Value of US Shipments, 1994-2009 16000

14000

12000

10000

total 8000

digital $ millions $ physical 6000

4000

2000

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Ensuing Research

• Mostly a kerfuffle about whether file sharing cannibalizes sales • Oberholzer-Gee and Strumpf (2006),Rob and Waldfogel (2006), Blackburn (2004), Zentner (2006), and more • Most believe that file sharing reduces sales • …and this has led to calls for strengthening IP protection My Epiphany

• Revenue reduction, interesting for producers, is not the most interesting question

• Instead: will flow of new products continue?

• We should worry about both consumers and producers

Industry view: the sky is falling

• IFPI: “Music is an investment-intensive business… Very few sectors have a comparable proportion of sales to R&D investment to the music industry.” • Warner Music: “…piracy makes it more difficult for the whole industry to sustain that regular investment in breaking talent.” • RIAA: “Our goal with all these anti-piracy efforts is to protect the ability of the recording industry to invest in new bands and new music…” • RIAA: “this theft has hurt the music community, with thousands of layoffs, songwriters out of work and new artists having a harder time getting signed and breaking into the business.” File sharing is not the only innovation

• “Compound experiment” – Costs of production, promotion, and distribution may also have fallen – Maybe weaker IP protection is enough • My empirical question: What has happened to the “quality” of new products since Napster? – Contribute to an evidence-based discussion on adequacy of IP protection in new economy • And if so, why? Hard problem

• Quantifying the volume of high-quality new music released over time is hard • Some obvious candidates are non-starters – # works released (but skew) – # works selling > X copies (moving target) Two Broad Approaches

• Quality index based on critics’ best-of lists • 2 indices based on vintage service flow – Airplay by time and vintage – Sales by time and vintage

Approach #1: critics’ lists

• Want index of the number of works released each year surpassing a constant threshold • Use critics’ retrospective best-of lists – E.g. Number of albums on a best-of-the-decade list from each year – Retrospective: to be on list, album’s quality must exceed a constant threshold Rolling Stone’s 500 Best Albums (2004)

Rolling Stone Index

from 2004 album list

.06

.04

RollingStone

.02 0

1960 1970 1980 1990 2000 2010 Year Index Availability

Word, The Virgin Media Under the Radar Uncut Treble Treble Tiny Mix Tapes Times, The The Word The Times 80 The Sunday Times The Sun The Guardian The Boombox Stylus Decade Stylus State Spinner Spinner Slant Slant Rolling Stone Rolling Stone Rock's Back Pages Rhapsody Rhapsody Resident Advisor Resident Advisor Popdose Popdose 60 Pitchfork Pitchfork Pitchfork 1990s (99) Paste The Onion A.V. Club onethirtybpm OneThirtyBPM NPR National Public Radio “Splice” Noise Creep NME NME musicOMH Mixmag Metromix Denver together to Metacritic Lost At Sea LostAtSea The Line of Best Fit Index Kitsap Sun create overall 40 Irish Times HipHopDX Guardian, The Glide Gigwise Gigwise Ghostly index, covering FACT Entertainment Weekly eMusic Delusions of Adequacy Decibel pre- and post- Daily Californian Creative Loafing Consequence of Sound Consequence of Sound Complex Complex Napster era. CokeMachineGlow Boot, The 20 Boom Box, The Billboard BetterPropaganda Austin Town Hall American Songwriter Q NOW MSN.com BET Pitchfork 1990s (03) Blender songs Rate Your Music Zagat Rolling Stone Best Ever Acclaimed Songs

Acclaimed Albums 0

1960 1970 1980 1990 2000 2010 Year Data Validity

• Do indices pick up major eras? – Larkin (2007): “The 60s will remain, probably forever, the single most important decade for popular music.” • Do indices track each other? • Are critical responses relevant to demand (and therefore economic welfare)? Concordance of Long Term Indices

Supply Indices

Acclaimed BestEver Rate Your Music

.03 .05 .05 .025

.02 All

.015 correlations

.01 0 0 exceed 0.7, 1960 1980 2000 1960 1980 2000 1960 1980 2000 except with

Rolling Stone Zagat Zagat

.06 .05

.04

.02

0 0

1960 1970 1980 1990 2000 1960 1970 1980 1990 2000 Year Graphs by source The Most Listed Albums of the 2000s, or How Cool Are You? Lots of concordance rank artist album number of year RIAA lists cert 1 Radiohead Kid A 32 2000 P 2 Arcade Fire Funeral 31 2004 3 Strokes, The Is This It 29 2001 G 4 OutKast Stankonia 29 2000 3xP 5 Wilco Yankee Hotel Foxtrot 28 2002 G 6 Jay-Z The Blueprint 25 2001 2xP 7 Flaming Lips, The Yoshimi Battles the Pink Robots 21 2002 G Significant sales; 8 LCD Soundsystem Sound of Silver 20 2007 not economically 9 West, Kanye The College Dropout 20 2004 2xP irrelevant 10 Stevens, Sufjan Illinois 20 2005 11 TV on the Radio Return to Cookie Mountain 19 2006 12 Modest Mouse The Moon & Antarctica 19 2000 G 13 White Stripes, The Elephant 19 2003 P 14 Daft Punk Discovery 19 2001 G 15 Interpol Turn On the Bright Lights 18 2002 16 Eminem The Marshall Mathers LP 18 2000 9xP 17 Radiohead In Rainbows 18 2007 G 18 Beck Sea Change 17 2002 G 19 Bon Iver For Emma, Forever Ago 17 2007 20 Broken Social Scene You Forgot It in People 16 2002 21 Spoon Kill the Moonlight 15 2002 22 Knife, The Silent Shout 15 2006 23 White Stripes, The White Blood Cells 15 2001 G 24 Animal Collective Merriweather Post Pavillon 15 2009 25 Madvillain Madvillainy 15 2004 Splicing via regression

• “Splice” indices

• Plot θ’s And voila: Index of vintage quality

Album Year Dummies and Napster weighted

2.5

1.5

.5 1960 1970 1980 1990 2000 2010 year

coef top of 95% interval bottom of 95% interval And voila: Index of vintage quality

Album Year Dummies and Napster

weighted 3 Index is falling prior

2.5 to Napster

2 1.5 Post-Napster

1 constancy is, if anything, a

.5 relative 1960 1970 1980 1990 2000 2010 increase year

coef top of 95% interval bottom of 95% interval Answer #1

• No reduction in quality following Napster – Cf “The sky is falling.” • But: – Elites – Right tail – Not consumption data Approach #2

• Measure of vintage “quality” based on service flow/consumer decision – Sales and airplay • Idea: if one vintage’s music is “better” than another’s, its greater appeal should generate higher sales or greater airplay through time, after accounting for depreciation Data: Airplay

• (Describing data first makes empirical approach easier to exposit) • For 2004-2008, observe the annual share of aired songs originally released in each prior year. • From Mediaguide – 2000, over 1 million spins/year – Lots of data: smooth, precise

Vintage Distribution for Songs Aired in 2008 Vintage Distribution for Songs Aired in 2008

1960 to 1990 15 Direct evidence of 1

depreciation

meanof month_pct

.2 0

0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

1960196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008 Data: Sales

• Coarse sales data: RIAA certifications – See when sales pass thresholds, know when released • Gold=0.5 million, Platinum=1 million, multi-platinum=X million – Apportion uniformly • 17,935 album certs; 4428 single certs • Covers most of music sales • Tracks known patterns • Eliminate greatest hits

Depreciation in Sales Data

• Again, older albums sell less

Distribution of Sales by Time since Release .5

.3 mean of s .2

.1 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 • Question: after accounting for music age, are particular vintages sold, aired more? Or less?

Regression approach

• Define st,v = share of vintage v music in the sales or airplay of music in period t. – Observe s for V vintages and T years – For a given year t, s varies across vintages for two reasons • Depreciation and variation in vintage quality

• Regress ln(st,v) on age dummies, vintage dummies. – Allow flexible depreciation pattern • Then: vintage dummies are index of vintage “quality” Resulting Airplay Index

Airplay-Based Index Flexible Nonparametric

2.5

1.5

1960 1970 1980 1990 2000 2010 Vintage

Index top of 95% interval bottom of 95% interval Any Guesses?

Airplay-Based Index Flexible Nonparametric 2.5

1.5

1960 1970 1980 1990 2000 2010 Vintage

Index top of 95% interval bottom of 95% interval Sales-Based Index

Sales-Based Index

Flexible Nonparameric 1

Index

-1

-2 1960 1970 1980 1990 2000 2010 Vintage Guesses about Sales-Based Index?

Sales-Based Index

Flexible Nonparameric 1

Index

-1

-2 1960 1970 1980 1990 2000 2010 Vintage Bottom line

• No evidence that vintage quality has declined • Some evidence that it has increased • Hard to know what it might otherwise have been • Puzzle: Why is “quality” up despite revenue collapse?

And the Bands Played On: Digital Disintermediation and the Quality of New Recorded Music Joel Waldfogel University of Minnesota and NBER Fundamental features of recorded music

• “nobody knows” (Caves) – Hard to predict success at time of investment – Perhaps 10 percent succeed • Traditionally, it has been expensive to “experiment” (Tervio) – Must bring a product to market to learn whether it will succeed – ≈$1 million using traditional means – So bet on a few artists with ex ante promise • Result: “mediocrity” Along comes digitization

• (…and demand: piracy) • …and supply – Obvious effects on production and distribution • Recording, distribution are now inexpensive – Promotion too? • Traditionally, radio is a bottleneck • Now Internet radio and online criticism • It has become cheaper to “experiment” – Do we end up discovering more artists with ex post value? Plan for Act II

• “model” rationalizing increased quality • Questions • Data • Results “Model” inspired by Caves(“nobody knows”) and Tervio (“mediocrity”) • Label forms estimate of album marketability q’ as truth + error: q’=q + ϵ • Bring a product to market if q’> T. • Cost reduction trumps piracy, so that on balance, digitization reduces T, raising the number of projects that can be brought to market. • Big question: what happens to the volume of “good” work available to consumers? Suppose marketability were predictable • Then reduction in T brings more products • But they are of modest quality: T’ < q < T With unpredictability

• Release all products with expected quality above T’ • Result: more products with quality > T

• Release of products with less ex ante promise leads to a greater number of products with ex post success/value Is this explanation right? Some specific empirical questions • More new products? • …including those with less ex ante promise? – E.g. independent vs major labels • A changed information/promotion environment? – Do consumers have ways to learn about the proliferation of new music? Questions

• Changed paths to commercial success? – Roles of tradition radio, Internet, and critics • Is sales concentration rising or falling? – Do additional products draw share? • Do the products with less ex ante promise – e.g. indie artists who would not have been released before digitization – account for a rising share of ex post success? Illustrative Anecdote: Arcade Fire’s The Suburbs • Released by indie Merge Records August, 3, 2011 • Critical acclaim

– Metascore=87 (top 5%) Arcade Fire – Ready to Start on Last.fm

• Little conventional airplay 40000 30000

– Not on BB Airplay Chart listeners – But big on Internet radio 20000

10000 01jul2010 01oct2010 01jan2011 01apr2011 01jul2011 • Success ddate – Sold >0.5 million copies – Best Album Grammy for 2011 On to more systematic evidence: Two Broad Data Sets • Albums released in the US 1980-2010 – By label type • major, independent, self-released – Physical vs digital • list of commercially successful albums – from top-selling album charts • (and my estimates of the albums’ actual sales) – linked with • measures of traditional radio airplay • promotion on Internet radio • coverage by music critics • whether on independent label

…from 9 underlying sources

• Recordings – Discogs, 1980-2011 • Albums (including vinyl, CD, “files”) • Singles excluded • Hand-matching of labels to label codes from Thomson (2010) – Plus… “underground”, “independent”,… Commercially successful albums

• Billboard 200 – weekly ranking of top 200 selling albums, 1985-2011 • Heatseekers – weekly top 50 albums by emerging artists (2000-2011) • Billboard Independent album chart – 2001- 2011 – Use for independent designation in dataset 2 Promotion

• Airplay – Billboard 100 – 75 top songs of the week, 1990- 2011 – Top 200 airplay – 2009-2011 – Last.fm – top 420 songs of the week, 2006-2011 • Critics – Metacritic – coverage if 3+ critics review – Appeared in 2000; growth to roughly 1000 albums per year in 2010

Sales Certifications

• RIAA – Gold, Platinum database – 1970-2010 – I use to translate BB album rankings into sales estimates

Answers

• Growth in releases? • Changing information environment • Evolution of sales concentration • Success and promotional channels • Ex ante promise and ex post success

Growth in releases over time

Releases by Type including unknowns

10,000 (Continued)

8,000

6,000

4,000 2,000

0 Nielsen: 30,000 in 1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010 2000 to about sum of self sum of indie sum of unknown sum of major 100,000 in 2010 Interesting, but…

More products doesn’t mean more good products Indies pass majors

Major, Indie, and Self Releases

excluding unknowns 2,500 Note also

2,000 self-releases

1,500

1,000

500 0

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

sum of self sum of indie sum of major Role of purely digital albums

Physical and Digital Releases

10,000 Consistent with idea of reduced

8,000 costs facilitating greater product

6,000 entry

4,000

2,000 0

199019911992199319941995199619971998199920002001200220032004200520062007200820092010 Answers

• Growth in releases? • Changing information environment • Evolution of sales concentration • Success and promotional channels • Ex ante promise and ex post success

Changing Information Environment

• Traditional radio – BB airplay – top 75 songs by week • 3,900 listings per year – But only about 300 distinct artists • Traditional vs Internet radio – Compare BB list with last.fm top 420 songs of the week – Little overlap – 10 percent Top 2006 BB Airplay Artists not on Top Artists on Last.fm in 2006 without BB Last.fm Weekly Top 420 Airplay

ARTIST BB airplay index ARTIST listeners MARY J. BLIGE 14.3 DEATH CAB FOR CUTIE 5,200,000 BEYONCE 12.0 COLDPLAY 5,200,000 NE-YO 10.3 RADIOHEAD 4,700,000 CASSIE 9.8 MUSE 3,900,000 CHRIS BROWN 9.8 ARCTIC MONKEYS 3,000,000 YUNG JOC 8.2 THE POSTAL SERVICE 2,800,000 SHAKIRA 6.9 THE BEATLES 2,400,000 LUDACRIS 6.0 SYSTEM OF A DOWN 2,300,000 CHAMILLIONAIRE 5.7 BLOC PARTY 2,100,000 AKON 5.2 NIRVANA 1,900,000 THE ARCADE FIRE 1,900,000

Takeaway: Internet radio allows promotion for artists with less promotion on traditional radio Second, growth in criticism

• Much of it online

Growth in Reviews

sources founded since 1980 with over 2000 reviews in Metacritic 100000

Under The Radar 80000 Drowned In Sound PopMatters Uncut 60000 Pitchfork The A.V. Club Mojo

All Music Guide 40000 Entertainment Weekly Q Magazine Spin Alternative Press

20000 Rolling Stone

Cumulative MetacriticReviews 2000-2011 0

1970 1980 1990 2000 2010 Founding Year Answers

• Growth in releases? • Changing information environment • Evolution of sales concentration • Success and promotional channels • Ex ante promise and ex post success

Evolution of sales concentration

• More products available • Do more products achieve (relative) commercial success? – Do more albums enter the weekly BB200? – Not the dumb question it sounds like • 200 listings/week x 52 weeks = 10,400 listings/year • Could be anywhere between 200 and 10,400 distinct artists per year Sales grow less concentrated in top few artists

Distinct Artists on the BB200 Suggestive that new 1200 products – which would earlier not

1000 have existed – take market share from

existing products

800

Number

600 400 1985 1990 1995 2000 2005 2010 year Answers

• Growth in releases? • Changing information environment • Evolution of sales concentration • Success and promotional channels • Ex ante promise and ex post success

Success and promotional channels

• What’s happening to the role of traditional airplay among successful artists? • What’s happening to the role of critics? Declining role of traditional radio

Share of BB200 with Billboard Airplay

Declining share with .3 airplay, especially since

2000

meanof dair

.1 0

1991 199219931994 19951996199719981999 20002001 2002 2003 200420052006 2007200820092010 Even for top 25

Share of BB25 with Billboard Airplay

meanof dair

.2 0

1991 199219931994 19951996199719981999 20002001 2002 2003 200420052006 2007200820092010 Contrast: increasing share with critical attention

Share of BB200 with Metacritic Reviews

meanof dmeta

.1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Answers

• Growth in releases? • Changing information environment • Evolution of sales concentration • Success and promotional channels • Ex ante promise and ex post success

And, finally: Ex ante promise and ex post success • Do artist with less ex ante promise – who would not have made it to market prior to digitization – now achieve sales success? • Specifically, do indies account for a growing share of sales?

Yes

Indie Share among Billboard 25

Indie Share among Billboard 200

.15

meanof dindie

.05

.1 0

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Conclusion

• Despite revenue reduction, “quality” is up • Digital disintermediation provides possible explanation for increased “quality” • Given unpredictability, more “experimentation” leads to discovery of additional “good” music • Much of which would not have come to market before digitization The changing face of “digitization”