YouTube Decade: Cultural Convergence in Recorded Music∗ Lisa M. George Christian Peukert Hunter College and University of Zurich the Graduate Center, CUNY June 17, 2016 Abstract Digital technology has the potential to impact the diffusion of new goods both within and across markets. The net effect of technology on globalization is thus an empirical question. We study the role of YouTube in globalizing the market for recorded music. We consider the US, Germany and Austria, exploiting a natural experiment that has blocked official music videos on YouTube in Germany since 2009. We document a causal link between YouTube access and both global and local outcomes. YouTube increases overlap with US weekly top charts, a globalizing effect, but also induces greater chart penetration of domestic music, a local effect. We show that the dual result is driven in part by the dynamics of the market: YouTube increases chart turnover, which expands the market for domestic titles. Our results indicate that global platforms need not advantage global culture. Keywords: Digitization, Trade, Globalization, Media, Superstars, Natural Experiment JEL No.: L82, O33, D83 ∗The authors gratefully acknowledge the financial support of this research by the NET Institute, http://www.NETinst.org. Lisa M. George, Department of Economics, Hunter College, 695 Park Ave., New York, NY 10065. Email: [email protected]. Christian Peukert, Chair for Entrepreneurship, University of Zurich, Affolternstrasse 56, 8050 Z¨urich, Switzerland. Email: [email protected]. 1 Introduction Twentieth century innovations in media technology influenced the adoption and diffusion of new goods, and in some cases the industrial organization of product markets themselves. For example, across countries, differential access to information via mass-media (radio, television, newspapers) explains some variation in diffusion rates of new products (Talukdar et al., 2002; Tellis et al., 2003; Chandrasekaran and Tellis, 2008). Within the US, the diffusion of television (and television advertising) contributed to rising household debt linked to automobile purchases (Baker and George, 2010), and to greater penetration of national over local beers (George, 2009). By reducing the cost of product discovery for some goods relative to others, or by reducing the cost of reaching consumers for some firms relative to others, media technology can have broad impacts on product markets. Digital technology and the internet have similarly influenced relative diffusion rates of new products and the organization of industries. For example, Prince and Simon (2009) find that the internet speeds adoption rates of popular relative to less popular products, creating what has come to be known as \superstar" markets. The explanation for this and related findings is often that consumers interpret popularity as a signal of quality (Hendricks et al., 2012), which is enhanced by social interactions (Chevalier and Mayzlin, 2006; Susarla et al., 2012) and automated recommendations (Oestreicher-Singer and Sundararajan, 2012). The tendency for technology to promote concentration and superstar markets is offset by two important competing forces. When horizontal differentiation is important, popularity signals can be relatively more effective for niche products (Tucker and Zhang, 2011), increasing demand for goods in the \long tail" relative to those with mass appeal. In addition, unlike media innovations of the twentieth century, digitization has also brought about substantial cost reductions on the supply side, impacting inventory, distribution, and production. Falling costs are especially important for digital products. As a result, online retailers are able to offer greater variety { including niche titles { (Brynjolfsson et al., 2003), and firms have greatly expanded the number of musical works, movies and books coming to market (Waldfogel, 2012; Aguiar and Waldfogel, 2016; Waldfogel, forthcoming; Waldfogel and Reimers, 2015). 1 The strategic consequences of digitization for product markets has driven a growing literature interested in understanding the distribution of sales within markets. A key focus thus far has been documenting the emergence of superstars and/or longer tails that arise from the balance of these offsetting forces (Brynjolfsson et al., 2011; Zentner et al., 2012; Ordanini and Nunes, forthcoming). The effects of the internet on product diffusion across markets is less well understood, and much more controversial. In the EU, superstar markets are synonymous with globalization and US dominance, fueling regulatory concern and litigation. The offsetting forces for niche products seem nearly beside the point. The spread of digital platforms likewise exacerbates long-standing concerns regarding US dominance in movies, music and other cultural goods.1 Yet evidence on the globalizing effect of digital technology remains surprisingly limited. Trade research does show a positive relationship between growth in the number of domains registered in a country and export growth (Freund and Weinhold, 2004), while a preference for local content and products persists (Blum and Goldfarb, 2006; Hortacsu et al., 2009; Burtch et al., 2014; Agrawal et al., 2015; Lin and Viswanathan, 2016). The best empirical evidence regarding cultural products available in Ferreira and Waldfogel (2013) points to persistent and even growing sales of domestic music and stable export shares in the digital era. Their study, however, ends in 2007, before distribution platforms fueled by social interaction and recommendation engines such as iTunes, YouTube and Spotify had fully developed.2 The globalizing effect of digitization in markets for cultural goods remains an open question. This paper studies the role of YouTube in globalizing the market for recorded music. We ask whether the offsetting forces supporting both global superstars and niche artists in a longer tail has lead to more or fewer similarities across countries than were present at the start of the YouTube era. We consider not only net effects, but study how the platform impacts the distribution of global and domestic artists. Using data on weekly top singles charts from 2005 into 2013 in Germany, Austria and the US, 1A recent summary of globalization concerns in Europe can be found at http://www.nytimes.com/2016/06/02/ technology/why-the-world-is-drawing-battle-lines-against-american-tech-giants.html. 2Data from the Recording Industry Association of America shows that the digital share (paid downloads and streaming) of recorded music revenue has grown from less than 20% in 2007 to about 60% in 2012. 2 we show causal links between access to music on YouTube and trends in recorded music sales. We find that YouTube increases overlap with US weekly charts, a globalizing effect. But at the same time, YouTube increases the penetration of domestic music on top charts. The process is driven in part by the dynamics of the market: YouTube increases chart turnover, with stronger effects outside the top ten titles. Higher turnover expands the market for domestic products. Our results suggest limits to the globalizing role of international superstars through music platforms and a persisting market for niche works. The magnitudes of our results indicate that YouTube will not displace local culture. YouTube is well suited to studying the impact of digitization on the distribution of sales within and across markets. Nowhere do the conflicting global and local forces of digitization play out more dramatically than on YouTube, where over a billion global users access more than 6 billion hours of video each month. YouTube now serves over 75 localized markets in 61 languages, with 60% of viewers residing in non-English speaking countries. YouTube marketers emphasize the platform's global reach, reporting that over half of views originate outside of the creator's home country. But superstar effects clearly also play a role on the platform, as worldwide YouTube viewing is highly concentrated among top videos.3 The context for our analysis is the 2009 launch of YouTube's partner program, which culmi- nated in major record labels making official versions of their music video libraries freely available on YouTube. The program eased the litigious \takedown" phase of YouTube's development that had handicapped the platform's growth in the years after its 2005 founding. Over the course of a few months in 2009, YouTube became the most trafficked music site in the US.4 Through the \Content ID" technology, all user videos are digitally matched to YouTube's library prior to release. When uploads contain copyrighted material, rights holders are offered the choice of blocking the infringing video or \monetizing" the content by sharing revenue from 3A widely covered report indicated that the top 30% of videos receive 99% of viewing. See media coverage here: http://goo.gl/Z2DNxM; original blog post at http://youtube-global.blogspot.com/2011/04/ mmm-mmm-good-youtube-videos-now-served.html. 4See, for example, http://techcrunch.com/2010/01/13/youtube-vevo-overtake-myspace-music/ 3 advertisements. In testing, YouTube reported over 90% of rights holders chose monetization.5 With full-scale implementation across all the major record labels in late 2009, YouTube's transformation to a music distribution platform was complete. Today, about 30% of YouTube videos are music videos accounting for over 40% of total viewing across all categories.6 We focus our research on the US, Germany and Austria. We make this choice for both policy and practical reasons.