Digital Renaissance Joel Waldfogel University of Minnesota and NBER CREATe Conference, February 4, 2015
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Digital Renaissance Joel Waldfogel University of Minnesota and NBER CREATe Conference, February 4, 2015 Introduction • Digitization and media industries: a two-part story – Bad news on demand side • Napster, BitTorrent, etc – Cost reduction on supply side • Reduced costs of production, distribution, promotion • …along with “nobody knows” effect • Revolutionary effects on recorded music, books, movies, television,… – Lots of new products, many of which are consequential My additional goals today • While piracy is interesting/important, we should focus more research energy on whether the supply of new products remains robust • Rethink which evidence addresses whether copyright is fulfilling its function • Are we experiencing a crisis? – Evidence on music, books, movies, & television • Copyright research needs more and better data – Data availability woes necessitate flexibility Outline • Music quality since Napster: rising or falling? • Why? • Then revisit the relevant questions in book, motion picture, and other creative sectors • …in the order of the evolution of my understanding Digitization in music, round 1 • The standard music paper motivation since ’99: “the sky is falling!” $ millions RIAA Total Value of US Shipments, 1994-2009 16000 14000 12000 10000 8000 6000 4000 2000 0 total digital physical 19941996199820002002200420062008 Research Response • Mostly a kerfuffle about whether file sharing cannibalizes sales • Surprisingly hard question to answer » Oberholzer-Gee and Strumpf (2006),Rob and Waldfogel (2006), Blackburn (2004), Zentner (2006), and more • …but most believe that file sharing reduces sales My Epiphany • Revenue reduction, interesting for producers, is not the most important question • Instead: will flow of new products continue? – (We should worry about both consumers and producers) • RIAA, IFPI: reduced investment will lead to an audio stone age File sharing is not the only innovation • “Compound experiment” – Costs of production, promotion, and distribution have also fallen – Maybe weaker IP protection is enough • 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 Hard problem: assessing quality/service flow of work over time • 2 approaches: • Critics’ 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 • Usage information by time and vintage Rolling Stone’s 500 Best Albums (2004) Index Availability Rolling Stone Index 60 .06 80 from 2004 album list 40 20 .02 Index .04 Pitchfork 1990s (99) Pitchfork 1990s (03) Blender songs Rate Your Music Zagat Rolling Stone Best Ever Acclaimed Songs Acclaimed Albums 0 0 1960 1970 1980 1990 Year • Regression: • Plot θ’s 2000 2010 Word, The Virgin Media Under the Radar Uncut Treble Treble Tiny Mix Tapes Times, The The Word The Times 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 Pitchfork Pitchfork Paste The Onion A.V. Club onethirtybpm OneThirtyBPM NPR National Public Radio Noise Creep NME NME musicOMH Mixmag Metromix Denver Metacritic Lost At Sea LostAtSea The Line of Best Fit Kitsap Sun Irish Times HipHopDX Guardian, The Glide Gigwise Gigwise Ghostly FACT Entertainment Weekly eMusic Delusions of Adequacy Decibel Daily Californian Creative Loafing Consequence of Sound Consequence of Sound Complex Complex CokeMachineGlow Boot, The Boom Box, The Billboard BetterPropaganda Austin Town Hall American Songwriter Q NOW MSN.com BET 1960 1970 1980 1990 Year 2000 2010 “Splice” together to create overall index, covering pre- and postNapster era. And voila: Index of vintage quality Album Year Dummies and Napster 3 weighted .5 1 1.5 2 2.5 Index is falling prior to Napster 1960 1970 1980 1990 2000 year coef bottom of 95% interval top of 95% interval 2010 Post-Napster constancy is, if anything, a relative increase 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 2004-2008 by vintage • Sales 1970-2010, by vintage – From RIAA certifications Regression approach • Define st,v = share of vintage v music in the sales or airplay of music in period t. – For a given year t, s varies across vintages because of 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 0 .5 1 1.5 2 2.5 Flexible Nonparametric 1960 1970 1980 1990 2000 Vintage Index bottom of 95% interval top of 95% interval 2010 Sales-Based Index Sales-Based Index -2 -1 Index 0 1 Flexible Nonparameric 1960 1970 1980 1990 Vintage 2000 2010 Bottom line • No evidence that vintage quality has declined • More compelling evidence that it has increased • Hard to know what it might otherwise have been • Big contrast to IFPI/RIAA view • Puzzle: why continued quality despite revenue collapse? Fundamental features of creative products • “nobody knows anything” (Caves/Goldman) – 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 – Music: ≈$1 million using traditional means – So bet on a few artists with ex ante promise 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? How could quality improve? “Model” inspired by Goldman (“nobody knows”) • 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? Four questions: • More new products? – …including “indies” with less ex ante promise? • Do consumers have ways to learn about a proliferation of new products? – Changing roles of traditional radio, Internet, and critics Four questions, cont’d • 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%) • Success – Sold >0.5 million copies – Best Album Grammy for 2011 20000 10000 – Not on BB Airplay Chart – But big on Internet radio listeners • Little conventional airplay 30000 40000 Arcade Fire – Ready to Start on Last.fm 01jul2010 01oct2010 01jan2011 ddate 01apr2011 01jul2011 Answers • Growth in releases? – Yes. Nielsen: 35k in 2000, 100k in 2010 • Changing information environment • Evolution of sales concentration • Ex ante promise and ex post success Answers • • • • Growth in releases? Changing information environment Evolution of sales concentration 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 in 2006 – Little overlap – 10 percent Top 2006 BB Airplay Artists not on Last.fm Weekly Top 420 ARTIST MARY J. BLIGE BEYONCE NE-YO CASSIE CHRIS BROWN YUNG JOC SHAKIRA LUDACRIS CHAMILLIONAIRE AKON BB airplay index 14.3 12.0 10.3 9.8 9.8 8.2 6.9 6.0 5.7 5.2 Top Artists on Last.fm in 2006 without BB Airplay ARTIST DEATH CAB FOR CUTIE COLDPLAY RADIOHEAD MUSE ARCTIC MONKEYS THE POSTAL SERVICE THE BEATLES SYSTEM OF A DOWN BLOC PARTY NIRVANA THE ARCADE FIRE Takeaway: Internet radio allows promotion for artists with less promotion on traditional radio listeners 5,200,000 5,200,000 4,700,000 3,900,000 3,000,000 2,800,000 2,400,000 2,300,000 2,100,000 1,900,000 1,900,000 Second, growth in criticism • Much of it online Growth in Reviews 80000 100000 sources founded since 1980 with over 2000 reviews in Metacritic 60000 Under The Radar Drowned In Sound PopMatters 40000 Uncut Pitchfork The A.V. Club Mojo All Music Guide 20000 Entertainment Weekly Q Magazine Spin Alternative Press 0 Rolling Stone 1970 1980 1990 Founding Year 2000 2010 Success and promotional channels • What’s happening to the role of traditional airplay among successful artists? • What’s happening to the role of critics? Learning from critics vs radio of commercial successes: Share of BB200 with Metacritic Reviews .2 mean of dmeta .2 .1 .1 0 0 19 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 10 mean of dair .3 .3 .4 Share of BB200 with Billboard Airplay Declining share with airplay, especially since 2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 By contrast: increasing share with critical attention Answers • • • • Growth in releases? Changing information environment Evolution of sales concentration 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 Suggestive that new products – which would earlier not have existed – take market share from existing products 800 600 400 Number 1000 1200 Distinct Artists on the BB200 1985 1990 1995 2000 year 2005 2010 Answers • • • • Growth in releases? Changing information environment Evolution of sales concentration Ex ante promise and ex post success 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? .05 .1 mean of dindie .2 0 .1 0 mean of dindie .3 .15 .2 Indie Share among Billboard 25 .4 Indie Share among Billboard 200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 “Even the losers get lucky sometimes” 2005 2006 2007 2008 2009 2010 Summing up music • Digital disintermediation provides possible explanation for increased “quality” • Given unpredictability, more “experimentation” leads to discovery of additional “good” music – Ex ante loser become ex post winners • Much of which would not have come to market before digitization What about other cultural products? • Books, motion pictures, television,… • Of each, ask the questions (when possible): – More products? – Ways to learn about new products? – Changing sales concentration – Growing success of ex ante “losers”? – Are the new vintages “good”? Books • Growth in new products, “ecosystem”? new self-published books .4 450,000 Share of Adults with Tablets and eReaders 300,000 .2 350,000 .3 400,000 200,000 .1 250,000 100,000 50,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 150,000 01jul2010 01jul2011 01jul2012 01jul2013 ddate ebook reader either tablet • Yes, especially self-published e-books, supported by diffusion of tablets & e-readers Number of Titles on USA Today List during the Year 1800 2000 Declining sales concentration 1000 1200 1400 1600 Consistent with the idea that new products are drawing consumption away from traditional products 1995 2000 2005 year 2010 2015 Commercial success of ex ante losers Share of Bestseller Listings Originally Self-Published .2 Share of Bestseller Listings Originally Self-Published share .2 .1 01jan2009 0 .05 0 share .4 .15 .6 romance 01jan2010 01jan2011 01jan2012 date 01jan2013 01jan2014 01jan2009 01jan2010 01jan2011 01jan2012 date • From Storming the Gatekeepers, Waldfogel and Reimers (2013) 01jan2013 01jan2014 Movies • Different? – More costly: $100m for an average MPAA title • An important US export industry – “Jobs, jobs, jobs” Digitization and cost reduction in motion pictures • Production – Digital cameras that are cheap and good • Distribution – Digital sales (iTunes, Netflix, Amazon,…) • Promotion – Lots of movies reviewed online + user-generated reviews • ….raising the possibility of 1) new movies that 2) might be discovered by, and of interest to, consumers. • True? Production • Digital cameras introduced around 2000 – Widely adopted by even major productions ca 2009 – Arri Alexa, Red One, Canon 5D, Canon 70D – Prices: $250,000, $50,000,…,$2,000 – Creates opportunity for indie film makers (Attack of the digital clones) 0 .2 .4 .6 .8 1 Camera Types for Theatrical Releases 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 mean of arri mean of moviecam mean of alexa mean of canon mean of pana mean of aaton mean of red mean of other Major titles are steady, even declining 150 100 0 50 mpaareleases 200 250 Major MPAA Releases 1980 1990 2000 year Source: MPAA 2010 …but huge growth in overall production Movies with IMDb pages as of August 2013 Growth in small-scale theatrical release 0 200 400 600 800 Theatrical Release 1990 1995 2000 year/vintage MPAA movies theatrical releases 2005 2010 500+ screens reviewed at Metacritic Sources: MPAA, Box Office Mojo, Metacritic More movies “released” to digital streaming services 1500 Online vs Theatrical 0 500 1000 In 2013, over 1000 vintage-2010 movies available on streaming Netflix, over 1,200 at Amazon Instant 1990 1995 2000 year/vintage Theatrical releases Streaming at Amazon 2005 2010 Streaming Netflix avail in '13 Sources: IMDb, Instatwatcher.com, Box Office Mojo Product discovery • Significant growth in review provision and availability • A range of “professionals” plus amateurs Growth in Critic Coverage by Group 1=top 250, 2=250-500, 3=500-750,4=750-100 2 0 .2 .4 .6 .8 1 1 1990 1995 2000 2005 2010 1990 1995 2005 2010 2005 2010 4 .2 .4 .6 .8 1 3 2000 0 mean of dcritic Pro review availability goes deeper 1990 1995 2000 2005 2010 1990 Graphs by group Reviews of selected movies at IMDb 1995 2000 Many movies have user ratings at IMDb 1600 1800 2000 2200 2400 2600 User-rated Movies at IMDb by Vintage 2000 2005 2010 year Source: IMDb, movies with 5+ user ratings 2015 “Argo” example: wide range of “pros” Alexa Traffic Ranks of IMDb Argo Reviewers vertical lines at Rolling Stone, indiewire .1 0 .05 Density .15 .2 588 reviews and the Alexa ranks of their sources. Median rank: 1.6 million 0 5 10 Log Alexa Traffic Rank 15 20 Do independent movies succeed? • What is “independent”? – “I know it when I see it” • Independent Spirit – Limited appeal • Indiewire – Not produced by major studio Indies are growing share of box office and DVD revenue .1 .2 .3 .4 .5 Independent Share of Theatrical and DVD Revenue 1990 1995 2000 2005 2010 year Box Office DVD listings 2015 …and a growing share of what’s available through various channels Independent Share of Available Movies by Vintage 0 .2 .4 .6 .8 1 as of August 2013 1980 1990 2000 2010 year Netflix streaming on television Amazon Instant Top 50 Vudu by Vintage • Growth in independent movies by many measures Are the new movies “good” • Two kinds of approaches, based on critics and usage Rotten Tomatoes Rotten Tomatoes Best 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 0 20 40 60 80 100 87-90, 90-95, 95 mean of low mean of high mean of medium Absolute number of movies with high grades has risen a lot Independent movies account for growing share of RT-top movies .6 .4 .2 Not Major .8 1 Share of RT Top Movies from Independent Studios 1980 1990 2000 year 2010 Btw: pro and amateur opinions are positively correlated 0 20 40 60 80 100 Critics and Lay Opinion at Metacritic 2 4 Metascore 6 User Rating Median bands 8 10 Are new vintages “good”? Usage evidence • As before: • Regress ln(st,v) on age dummies, vintage dummies. – Allow flexible depreciation pattern • Then: vintage dummies are index of vintage “quality” Movies have been getting better Movie Vintage and Service Flow Extensive TV Listings -1 -.5 0 .5 1 Mixed result: no apparent increase in vintage service flow during most recent growth, since 2005 1960 1970 1980 1990 year 2000 2010 • Yes: more “draws” 0 0 1,000 600 2,000 count of x 400 800 1,000 3,000 TV Series at IMDb by Premiere Year 19 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2099 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 19 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2099 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 200 count of x Television • Growth in products? Rated TV Series at IMDb by Premiere Year 19 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2099 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 0 19 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2099 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 0 .2 .2 .4 .4 .6 .6 .8 .8 1 1 Falling traditional-network share of acclaimed shows Traditional Broadcast Network Share of Metacrtic top 25 by series vintage Top Shows by Vintage and Source IMDb ratings mean of traditional mean of premium mean of other The best new shows are “good” compared to history 80 75 70 65 average metascore 85 Average of Top 10 Metascores 1995 2000 2005 premiere year 2010 The Golden Age of television is now 2015 Where else? • Video games? • Photography? – Democratization of means of production 4 2 0 Images (millions) 6 8 Creative and Editorial Images at Getty by Vintage 1960 1980 2000 Vintage 2020 Conclusion • While new digital technology brought threats to creative industries (piracy), it also brought opportunities • Huge growth in new products and distribution • And “new products” make up large and growing share of successful • Threats to revenue are real, but – no sign of diminished output – and works are better Public Policy • Rights holders are concerned about declining revenue from some sources – Understandable • Copyright exists to provide incentives for creative activity • Despite revenue performance in recorded music and newspapers, and fears in movies, there is no crisis in creative activity The changing face of “digitization” to Underlying works • • • • • • • • “Piracy on the High C’s..”, with Rob, JLE 2006 “Copyright…, JLE 2012 “And the Bands Played on..” NBER volume 2015 “Storming the Gatekeepers…” with Reimers, IEP (forthcoming) “Cinematic Explosion…” 2015? Digital Renaissance, Princeton Univ Press, 2016? “Even the Losers…” with Aguiar & Duch Brown “Quality Predictability…” with Aguiar