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Marketing Science
infilili
iM.
Vol.29,No. 6, November-December
2010,pp. 1138-1151
ISSN0732-2399
1eissn1526-548X
1101290611138
doi 10.12877mksc.1100.0600
2010INFORMS
PiratesWithoutCannibalizing
Converting
Purchasers:
The ImpactofDigitalDistribution
on
PhysicalSales and Internet
Piracy
BrettDanaher
Massachusetts
02481,bdanaher@wellesley.edu
Wellesley
College,Wellesley,
SamitaDhanasobhon,MichaelD. Smith,RahulTelane
HeinzCollege,CarnegieMellonUniversity,
15213
Pittsburgh,
Pennsylvania
mds@andrew.cmu.edu,
|sdhanaso@andrew.cmu.edu,
[
rtelang@andrew.cmu.edu
ofdigitalchannelsformediadistribution
has raisedmanyimportant
availability
questionsformarketers,
whetherdigitaldistribution
channelswillcannibalizephysicalsales and whetherlegitimate
digital
notably,
distribution
channelswill dissuade consumersfromusing (illegitimate)
digitalpiracychannels.We address
thesetwo questionsusingtheremovalof NBC contentfromApple's iTunesstorein December2007,and its
and we analyzethe
in September
restoration
2008,as naturalshocksto thesupplyoflegitimate
digitalcontent,
DVD
and
the
store.
this
on
demand
BitTorrent
channels
Amazon.com
of
shock
through
piracy
impact
and Amazon.com,documenting
levelsof
To do thiswe collectedtwo largedata sets fromMininova.com
piracyand DVD sales forbothNBC and othermajornetworks'contentaroundtheseevents.We analyzethese
model and findthatNBC's decisionto removeits contentfromiTunesin
data in a difference-in-difference
Thisis
December2007is causallyassociatedwithan 11.4%increasein thedemandforNBC's piratedcontent.
twiceas
roughlyequivalentto an increaseof48,000downloadsa day forNBC's contentand is approximately
largeas thetotallegalpurchaseson iTunesforthesame contentin theperiodprecedingtheremoval.We also
decreasein piracyforthesame contentwhenit was
findevidenceof a smaller,and statistically
insignificant,
at
we see no changein demandforNBC's DVD content
2008.Finally,
to theiTunesstorein September
restored
channelon iTunes.
Amazon.comassociatedwithNBC's closingor reopeningofitsdigitaldistribution
distribution
channels;cannibalization
Keywords:Internet;
piracy;digitaldistribution;
Publishedonlinein
History:Received:April29,2009;accepted:June16,2010;processedby DuncanSimester.
Articlesin AdvanceOctober 20, 2010.
- JamesGianopulos,Co-Chairman,
thatdoesn'twork.
Twentieth
CenturyFox (quotedin Thompson2003)
You'll neverstop [piracy].Whatyou have to do is com-
1. Introduction
channelshas
ofdigitaldistribution
The development
For
raisedmanyimportant
questionsformarketers.
and moviestudios,twoofthemoreimportelevision
tantquestionsare (1) can paid digitaldistribution
channelsserve as an attractivealternativeto consumptionthrough("free")digitalpiracychannels,
cannibalizeDVD box
and (2) will digitaldistribution
setsales?
Withrespectto thefirstquestion,thequote above
fromJamesGianopulos,co-chairmanof Twentieth
of manyin theindusCenturyFox,is representative
if not impossible,
it
is
that
who
claim
difficult,
try
channels
use paid digitaldistribution
to successfully
to competewitha free(albeitillegal)piracychannel.
SteveJobs,CEO
On theotherside of thisargument,
claimsthatdigitaldistribution
ofAppleIncorporated,
channels,such as Apple's iTunesvideo store,offer
to competewithpiracy
studiosthebest opportunity
the ease and convenienceof
channelsby mimicking
pricepoint.
piratedchannelsat a competitive
Withrespectto thesecondquestion,thereis ample
feel
evidencein thebusinesspressthatDVD retailers
will
channels
thatstudios'distribution
digital
through
cannibalizesales ofDVDs. Forexample,
significantly
in late2006,afterDisneyfinalizeda deal to distribute
itsmoviesthroughiTunes,pressreportsclaimthata
WalmartexecutivevisitedHollywoodStudiosto tell
themthat"it will retaliateagainstthemforselling
movieson Apple'siTunes[store]"(Arango2006).This
reportgoes on to note thatWalmart,whichmakes
up an estimated40% of studios' DVD sales, made
good on this threatby sending"'cases and cases'
of DVDs back to Disney" (Arango2006). Similarly,
1138
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PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
1139
nearlytwiceas largeas the daily numberof downloads of theseepisodes on iTunesin the two weeks
priorto December1, implyinga fixedcostassociated
withthe decisionto pirate:once individualsstartto
pirate,theypiratemorecontentthantheywouldhave
originally
purchased.Thismayalso implya spillover
- thatpiracyofcontenton othernetworks
effect
could
haveincreasedas a resultofNBC's decisiontoremove
itsowncontent
fromiTunes.Althoughwe cannotposbecause of the lack
itivelyidentifythis externality
of an appropriate
our resultsare concounterfactual,
sistentwithsuch an effectbecause non-NBCpiracy
increasedby 5.8% over this timeperiod (and thus
thedocumented11.4%increasein piracymayunderstatethe truedisplacementof piracyby digitaldistribution).
Finally,
althoughstudyingNBC's returnto
iTunesin September2008is complicatedby thestart
of a new season of television,
our evidencesuggests
thattherestoration
ofNBC contentto iTunescauseda
which
smaller,
statistically
insignificant
dropinpiracy,
is also consistent
witha fixedcostto piracy.
In contrastto thestrongcorrelation
betweenlegitimate digital distribution
and piracy,we find no
changein theAmazon.comsales rankofNBC television season box sets in the fourweeks surrounding
December1 relativeto the baselinechangein nonNBC box sets,implyingthatwhile customerswho
cannotpurchasedigitallymayturnto piracy,theydo
not considerDVD box sets- at least those sold on
- as a substitute
Amazon.com
to digitaldownloads.
2. LiteratureReview
As thispaperaddressestheinteraction
betweenlegitimatedigitaland physicaldistribution
channels,as
well as the interaction
betweenlegitimateand illechannels,the paper fits
gitimatedigitaldistribution
into two main literatures:
the marketingliterature
between various distribution
studyinginteractions
channels,and theeconomicsand information
systems
literature
on onlinepiracyofdigitalgoods.
Withrespectto thepiracyliterature,
mostexisting
studiesexaminethe effectof onlinepiracyon physical media sales. Most of thesestudiesanalyze the
impactofpiracyon musicCD sales,witha fewrecent
studiesexaminingtheimpactof piracyon movieor
televisionrevenue.The challengein this literature
is typicallyidentification,
as the correlation
between
sales
and
downloads
of
each
movie
physical
pirated
or song is predominantly
drivenby unobservedhetacrossgoods.
erogeneity
in
this literatureaddress the identificaPapers
tion issue in severaldifferent
ways: throughcrossshocks
to demand,or
variation,
country
exogenous
results.
With
to
variasurvey
respect cross-country
tion,Zentner(2005),Hui and Png (2003),and Peitz
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1140
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PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
by proposinga techniqueto collectdata documenting piracylevels over time and by being the first
estimatehow
paper we are aware of to empirically
interactwith
channels
distribution
digital
legitimate
bothphysicaland piracychannels.
demandthrough
3. Theory
1141
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PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
1142
7This is because,
startingin August2008,Apple did not add
any new NBC contentto the iTunesstorein responseto NBC's
thattheywould removeall of theircontentin
announcement
December.
4. Data
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(1)
1143
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1144
Table1
DataSummary
November
18 Through
Statistics,
Piracy
December
15,2007
1. Meandaily
downloads
12/1(balanced
before
panel)
2. Meandaily
downloads
after
12/1(balanced
panel)
3. Change
4. No.ofunique
episodes
available
before
12/1
5. No.ofunique
episodes
available
after
12/1
6. Change
1,683
3,400
1,812
3,383
129
-17
in the previoustwo weeks.A moredetailedanalysis shows that147 new NBC episodesbecameavailable throughpiratedchannelsin thetwoweeksafter
December1,and 18episodesceasedtobe available.In
fornon-NBCcontent,
we do notobserveany
contrast,
new episodes becomingavailable,and we observe
17 episodes ceasingto be available.The numberof
because we would
new NBC episodes is striking,
less popular
older
content
to
become
simply
expect
a
less
over
time.
as
result,
available)
(and,
Examiningthe newlyavailable episodes,we discoverthatentireseasonsof some less popularNBC
- seasonsthatwerenotavailableon Mininova
content
beforeDecember1 but were available on iTunesbecome available on Mininova afterDecember 1.
These seriesinclude,forexample,a numberof seasons of Saved by theBell and Xena: WarriorPrincess.
5. Results
5.1. Impact on NBC Piracy
= a/ +
log(Downloads/i)
Dec24
tDt
f=Novl5
Dec24
+ e,f/ (2)
r(D,xNBC,.
f=Novl5
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PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
Science29(6),pp. 1138-1151,
2010INFORMS
Marketing
1
Figure
1, 2007
December
NBCvs. Non-NBC
Piracy
Surrounding
relativeto non-NBCpiracyafteriTunes
significantly
removal.
AlthoughFigure1 providesstrongevidencethat
the removal of the digital distributionchannel
- and thatthis increasewas mainincreasedpiracy
tainedforat least the timeperiod of our data- it
does notconveniently
allow us to measuretheoverall averageincreasein piracycausedby theevent.To
avoid holidayeffects,
we use data fromNovember
18 to December15,whichgivesus twoweeksbefore
and two weeks afterthe event.Giventhisinformaas a stantion,we nextrunthefollowingregression
dard difference-in-difference
model to estimatethe
of theremovalof NBC contentfrom
aggregateeffect
iTunes:11
= a{ + Dt+ yNBQ xDf + eit. (3)
log(downloads/7)
Thismodelis similartomodel(2),exceptthathere,Dt
is a singleindicator
variableequal to one iftheobservationoccursin thetwoweeksafterDecember1,2007
and equal to zero if it is in the two weeks before
thatdate. Thus y capturesthe averageeffectof the
eventon NBC's piracyrelativeto thecontrolgroup's
piracy.A positivevalueindicatesthatNBC piracyhas
increasedby about 100*y percentin theperiodafter
removalrelativeto thepiracyof non-NBCchannels.
As before,
we includeepisode-level
fixedeffects
in the
formofa and daily-level
fixedeffects
in theformof
withdate fixed
Dr We also estimatea specification
effects
wherewe use a dummyforeach day similar
to (2).
We use a log specification
of our dependentvariable forseveralreasons.First,thedownloaddata are
11Observations
on December1 are removedfromthe
occurring
data as NBC was in the processof removingepisodes on this
date.Including
theseobservations
wouldnotmaterially
impactour
results.
1145
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1146
Table2
ofLogofDaily
LeastSquaresRegressions
Ordinary
18 Through
November
December
Downloads,
15,2007
and2008
After
12/1
0.058*
(0.029)
x
After
0.114**
12/1
Removed
(0.041)
4.513*
Constant
(0.011)
effects
No
Datefixed
No.ofepisodes
6,005
Observations
161,784
R2
0.028
LeastSquaresRegressions
ofLogofDaily
Ordinary
18 Through
Downloads
November
byGenre,
December
15,2007
Drama
2008
2007
(i)
Table3
(i)
(iii)
0.337**
(0.029)
0.115** -0.055
(0.041)
(0.058)
4.314*
4.296*
(0.013)
(0.027)
No
Yes
6,005
6,376
161,784
170,556
0.15
0.16
(iv)
-0.052
(0.059)
3.806*
(0.109)
Yes
6,376
170,556
0.37
downloads
before
orafter
Thedependent
variable
is ln(total
Notes.
pirated
include
are listedin parentheses.
Regressions
September
9). f-Statistics
with
attheserieslevel.
standard
errors
clustered
fixed
effects
episode-level
at0.05,Significant
at0.10.
at0.01,**significant
*Significant
x
After
12/1
NBC
Constant
Observations
No.number
ofepisodes
R2
Action
Comedy
Sci-fi
0.011
0.112+
0.223*
0.213*
(0.064)
(0.092)
(0.062)
(0.060)
5.050** 3.704** 4.920** 4.210**
(0.049)
(0.055)
27,378
1,014
0.21
51,830
1,925
0.24
-0.029
40,734
1,510
0.20
(0.076)
11,738
435
0.27
Notes.The dependent
variableis ln(totalpirateddailydownloads).
bothepisodeanddatefixed
arelistedinparentheses.
Includes
f-Statistics
we
withstandard
errors
clustered
effects,
byseries. Forthisanalysis,
thatdid notfitintothesefourmajor
severalshows/episodes
dropped
categories.
at0.10.
at0.10,**significant
at0.05,Significant
*Significant
14For
example,see theJune2009 Nielsenreportwithrespectto
forteens(NielsenComin mediaconsumption
genrepreferences
2010
Warner
the
Time
and
reporton mediaadvertising
pany2009)
to youngmales(TimeWarnerCable 2010).
targeting
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PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
1147
Table4
forHeadand
ofPiracy
Change
Analysis
TailTitles
DVDboxsets
After
12/1
After
12/1x NBC
After
12/1x Head
After
12/1x Headx NBC
Constant
Observations
No.ofepisodes
R2
0.086* (0.034)
0.104**(0.0424)
-0.110* (-0.044)
-0.039 (0.069)
4.518* (-0.010)
161,784
6,005
0.35
variable
is InfiTunes
Notes.Thedependent
downloads),
include
inparentheses.
f-Statistics
arelisted
Regressions
clustered
with
standard
errors
fixed
effects
episode-level
attheserieslevel.
at0.05.
at0.01, ^significant
*Significant
whethertheepisodeis in
dummyvariableindicating
thetop 20% in termsofnumberofdownloads.Thus,
theincreasein piracycaused by NBC's
y represents
removalfromiTunesforthelesspopulartailepisodes,
and y+ v indicatestheincreasein piracyforthemost
popularepisodes.18
The resultsin Table 4 suggestthaton a percentage basis the changein piracyforthemostpopular
no different
than
episodesin thehead was statistically
thatforthe tail. However,we also note thatinterpretingthesepercentageresultsin lightof the unit
downloadsofhead and tailtitleson bothiTunesand
throughpiracysuggeststhatiTunesdownloadsfor
head titleswere farmorelikelyto convertto piracy
thaniTunesdownloadsoftailtitleswere.
Thisfinding
also shedslighton thearguments
outlinedin thetheorysectionregarding
fixedversusvariin the resultsabove,
able cost to piracy.Specifically,
ourprimary
a
for
fixed
costto piracyis the
argument
in
fact
that
the
increase
caused
piracy
by theremoval
logPownloadsJ = f+jSDf+yNBQx Dt+8Dtx Head;
of theiTuneschannelwas largerthanthesize of the
+ vDtx Head,x NBCf+e/t. (4) iTunesmarketpreremoval.
A possibleobjection
tothis
is a storyofvariablecost:whentheiTuneschannelis
In model(4) Dt is again a dummyvariableequal to
removed,some percentageof iTunescustomersturn
oneifthedateis afterDecember1,and Head, is nowa
topiracy.Basedon how theBitTorrent
protocolworks,
thisadditionaldemandbecomessupplyand makes
15
we haveexplainedwhythelog modelis theappropri- download
Although
speedsfaster,
reducingthevariablecostof
atespecification
here,we also testeda linearmodel.Thecoefficient
and
additionalnew pirates
downloading
attracting
on theinteraction
termbetweenNBC and the afterDecember1
not
have
even
been
iTunescustomers).
(who
may
dummyin thelinearmodelis about25 downloadsperday and is
because
of
the
nature
of the number
at
However,
the
95%
level.
Thus
for
our
coefficient
of
a
interest,
significant
linearmodelproducesresultssimilarto thoseimpliedby our log
of connectionsmaintainedin BitTorrent
"swarms,"
model(a unitincreaseof 25 versusan increaseof 27 forthelog
episodes witha small numberof downloaderswill
model).
experiencea muchlargerreductionin variablecosts
16
at the95% confidence
level,we cannotreject (increasein download
Although,
notably,
speeds)fromadditionaldownthenullhypothesis
thattheincreasein pirateddownloadswas less
loaders
than
with
a largenumberof downepisodes
thanthesizeoftheNBC iTunesmarket
beforeitwas removed.This
loaderswill. Therefore,
if decreasingvariablecostis
is primarily
due to thelargestandarderrorsthatresultfromclus-
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Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
1148
is definedas theAmazon.comsalesrank
whereRank/7
of season box set /on day i, Dt is an indicatorvariable equal toone in thetwo-week
periodafterDecember 1, Pitis the priceof box set i on day t, and i,
is a vectorof fixedeffectsforeach season box set.
theAmazonsales rankas well as
We log transform
withpriorliterathe daily Amazon priceconsistent
the
and
on
ture
based
providedin 4. As
explanation
on a balanced
are
conducted
above,our regressions
do
not
observe
anynew
sampleof titles.Indeed,we
time
frame.19
this
DVD box settitlesadded during
One mayworrythatNBC (orAmazon)maychange
pricesof NBC DVDs in responseto the event.Our
data do notshowanyunusualpricechangesforNBC
DVDs. We also had a discussionwithNBC personnel and do notbelieveNBC strategically
changedthe
prices.However,inclusionof pricedata providesa
. Omissionofpricgood controlforourkeyestimate,
variablebias.We
to
omitted
lead
information
may
ing
in
Table6.
this
for
results
regression
present
the
has
that
note
We
Sales
Set
predictedeffect
DVD
Box
price
raising
5.2. Impacton Amazon.com
increasedrank.
as
observed
of
sales,
iTunes
by
the
decreasing
To determinethe degreeto which
digiin sales rank
no
observe
also
We
DVD
change
of
significant
channeldisplacespurchases
tal distribution
sets after
box
to
non-NBC
relative
box
sets
NBC
for
to
tests
we use similar
box setssold on theInternet,
sales
the
of
the
removal
1.
December
Thus,
is
digital
thoseabove. The dependentvariablein thiscase
sets
DVD
box
of
sales
increase
to
not
seem
did
channel
theAmazon.comsales rank,and thusa decreasein a
litthe
Given
Internet.20
the
on
sold
priormarketing
DVD's rankindicatesan increasein salesofthatDVD.
Viswanathan
differentiation
on
channel
erature
(e.g.,
Table5 comparesmeansforsales ranksof NBC and
non-NBCbox setsbeforeand afterDecember1, 2007. 2005),thisfindingcould suggestthatconsumersconsubWe see fromTable 5 thatthe mean rankfornon- siderillegaldigitaldownloadsa muchstronger
than
downloads
for
stitute
legalphysical
legal digital
NBC box setsincreasedby 10%,meaningthatfewer
non-NBCtelevisionseriesbox sets were sold after purchasesare forlegaldigitaldownloads.We discuss
thisresultin moredetailbelow.
December1 thanbefore.Theincreasein rankforNBC
box setswas only6%, whichcould indicatethatthe
iTunes
removalof NBC contentfromiTunescaused some 5.3. NBC's Returnto
thebestexperabove
results
The
represent
presented
additionalpurchasesof DVD box sets.However,as
the
determine
find
to
we
can
iment
relationship
ofmeans
thiscomparison
withouranalysisforpiracy,
and
between
distribution,
physical
digital
piracy,
does notaccountforchangesin pricethatmayoccur
on
occurred
another
sales.
However,
experiment
duringthistimeperiod(especiallywiththeapproachan
when September9, 2008, when, afterreaching agreeingholidays)noris a linearmodelappropriate
mentwithApple,NBC restoredall of its contentto
Table5
of Means),
DVDSales Rankat Amazon.com
(Comparison
December
11Through
November
15,2007
19Discussionswithknowledgeable
induspersonsin thetelevision
are
released
sets
DVD
box
all
almost
that
immediately
trysuggest
season,whichstartsin September.
networks beforethefalltelevision
Non-NBC
NBCnetworks
20We
analyzedDVD box setsat thelevelofbox setsales perday,
toDec.1
35,384
salesrank
24,553
Amazon.com
prior
ofsalesand changesbybox
becausepriceis a significant
predictor
Dec.1
after
38,785
salesrank
26,056
Amazon.com
set and by theday However,ifwe wereto clusterour standard
3,401
1,503
Change
errorsat theserieslevel,it would merelyinflatethem,and thus
10%
6%
% Change
our resultswould remaincloseto zeroand insignificant.
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PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
Table6
price)
ln(Amazon
After
12/1
After
12/1x NBC
Constant
Observations
No.ofuniqueDVDboxsets
R2
sales rank).f-Statistics
variableis ln(Amazon
Notes.Thedependent
fixedeffects.
includeDVD-level
arelistedinparentheses.
Regressions
does notmaterially
changetheresults.
Addingdatefixedeffects
at 0.05.
at 0.01,^significant
-^Significant
After
12/1
After
12/1x NBC
Constant
Datefixedeffects
Observations
No.ofepisodes
R2
(i)
(ii)
0.063
(0.049)
-0.077
(0.096)
4.306*
(0.021)
No
129,720
4,709
0.015
-0.077
(0.096)
4.275*
(0.053)
Yes
129,720
4,709
0.074
Notes.The dependent
variableis ln(totalpirateddownloadsbefore
and afterSeptember
are listedin parentheses.
Stan9). f-Statistics
darderrorsareclustered
at theserieslevel.
at 0.01,significant
at 0.05,Significant
at 0.10.
'Significant
1149
6. Discussion
Our resultsrepresent
thefirsttest,to thebestof our
we
are
aware
ofthatquantifies
theeffect
knowledge,
of a legal digitaldistribution
channelon bothonline
piracyand onlinesales ofphysicalproducts.As such,
decisionmakersat mediafirmssomemuchtheyoffer
neededevidenceregarding
theabilityoflegal digital
distribution
channelsto competewithillegalpiracy
channelswithoutcannibalizing
physicaldistribution
channels.
in this study,we used NBC's deciSpecifically,
sion to removeits contentfromthe iTunesmusic
storeon December1, 2007as a quasi-experiment
and
foundthattheremovalofNBC's primary
sales
digital
channelcaused an 11.4% increasein piracyof that
contentover and above any changeexperiencedby
networksABC, CBS, and Fox over the
competitor
sameperiod.An 11.4%increasein piracycorresponds
to about27 moredownloadsper day per episode,or
48,000additionalpirateddownloadsof all NBC contentper day.To put thisnumberin perspective,
it is
about twiceas largeas the numberof daily iTunes
sales NBC receivedin thetwo weeksbeforeDecember1. Thisestimateis conservative
becauseMininova
piracy,althougharguablya good proxyforoverall
BitTorrent
piracy,represents
onlya portionofoverall
BitTorrent
televisionpiracy.
We note that this large jump in piracy (larger
than the size of the iTunes market)is consistent
with therebeing a significant
fixedcost to piracy.
In otherwords,our resultsare consistentwiththe
possibilitythatiTunespurchasersmay avoid piracy
because the fixedcost in learningto use BitTorrent
(or the fixedmoral/stigmacost of illegalbehavior)
makespiracyless attractive
thanlegitimate
purchases
iTunes.However,whenthedigitalsaleschanthrough
nel is not available,theseindividualsturnto piracy,
pay thefixedcost,and, owingto theseeminglylow
marginalcostsofadditionaldownloads,beginto consumemorecontentthrough
piracythantheyhad prethisphenomenon
seems
Moreover,
viouslypurchased.
mostprevalent
forthemostpopularepisodesoftelevision,whichsuggeststhatitis notdrivenbya decrease
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All use subject to JSTOR Terms and Conditions
1150
PiratesWithoutCannibalizingPurchasers
Danaher et al.: Converting
2010INFORMS
Science29(6),pp. 1138-1151,
Marketing
a snapshotintimefora singlemediatype.It
in the variablecost of piracyresultingfrommore represent
studiestoanalyzecompetiwould
be
usefulforfuture
in
swarm.
the
BitTorrent
piratesparticipating
and illegitimate
could even have a
tionbetweenlegitimate
effect
We notethata fixed-cost
digitalchana
results.
that
have
in
to
confirm
our
networks
other
other
nels
effect
for
digital
settings
spillover
once thefixedcostis paid for
Anotherinteresting
sales channel/because
potentialdirectionforfuture
results
Our
ABC
as
well.
"moral"cost of piracy.In 3,
to
the
it
is
relates
research
NBC,
likelypaid for,say,
model
shows
the
with
this
topurchaseorpiraterests
that
the
decision
are consistent
we argued
possibility
when
we
in
non-NBC
cost curve
a 5.8% increase
might largelyon the shape of the nonfinancial
piracy
from
have expecteda decreaseresulting
decreasing associatedwithpiracy.Althoughpartofthatcostmay
interest.
However,thisresultshouldbe treatedcau- be relatedto learningor to the (sometimes)diminevi- ished qualityof the piratedcopies,thesecostsmay
tiouslyowingto a lack of strongcounterfactual
dence fornon-NBCpiracy.Eitherway,theseresults approachzero in the futureas piratesbecomemore
because sophisticatedin theirmethods,consumersbecome
shouldsoundan alarmto contentproviders,
once thefixedcostofpiracyis sunk,it maybe diffi- more technologically
savvy,and clientsoftwarefor
cultto getpiratesto returnto legal options.Indeed, piracybecomeseven moreuser-friendly.
We suspect
in thefuture
efforts
althoughthe returnof NBC contentto iTunespre- thata largepartofantipiracy
may
sentedsome analyticalchallengesas a resultof its need to relyon the consumer's"moral"cost associcoincidingwiththestartofthefalltelevisionseason, ated withpiracy.To pricecompetitively,
digitaldiswe observeda smallerand statistically
would benefitfromknowingmore
efforts
insignificant tribution
decreasein piracyforNBC content(comparedwith abouttheshapeofthismoralcost.As such,we believe
to iTunes.
non-NBCcontent)whenit was returned
or in the
thatuserstudies- whetherin thelaboratory
DVD
box
of
on
sales
distribution's
cost
moral
the
nature
of
the
at
aimed
field
impact
Digital
revealing
channelspresentsa differ- of piracyfordifferent
setssold throughInternet
a
fertile
is
consumers
of
types
however.WhenNBC removedits archived area forfutureresearch.
entstory,
seasonsof televisionfromiTunes,we foundno significantchange in the Amazon.comsales rank for
Acknowledgments
NBC's DVD salesrelativeto thetrendthatwe saw for Authorsare listedin alphabeticalorder.The authorsthank
ofthis Mel Stephens,LowellTaylor,JoelWaldfogel,
non-NBCbox sets.One possibleinterpretation
NitinMehta,
are
not
DVDs
and
at
downloads
that
is
and
this
of
the
editors
workshopparticipants
digital
journal,
finding
Techin theshortterm,and thusaddinga digi- the 2009 NBER SummerWorkshopon Information
substitutes
Conference
channeldoes notlead to a short-term nologyand Economics,the 2009 International
tal distribution
the2008 ZEW Web 2.0 WorkIndustrial
on
interA
similar
set
sales.
DVD
box
in
Organization,
displacement
Systemsand
is thatthereis a fixedcostto digitalviewing shop, the 2008 Workshopon Information
pretation
the
State
Arizona
University, Universityof
and oncea consumerhas "gonedigital," Economics,
oftelevision,
Cornell
at
California
Irvine,
CarnegieMellon University,
she is unlikelyto comeback.
of
the
of
the
University
Maryland,
University
to our University,
We note thatthereare severallimitations
of
the University
SouthernCalifornia,
University,
Temple
our findings
represent Texas at Austin,and the Universityof Texas at Dallas
study.First,and mostnotably,
betweenlegitimate
a testofshort-term
digi- forvaluablecommentson thisresearch.The authorsalso
elasticity
and phys- thankGuillermoJose
taldistribution,
Salahaldin
pirateddigitaldistribution,
Aguilar,TemiAwofisayo,
channels.Thelong-term
icaldistribution
forexcellent
presenceofa
Hussein,SuganthPranesh,and BryanSpringer
channellikelyhas a muchstronger researchassistance.The authorsacknowledgetheNational
digitaldistribution
sales thanthoseobserved ScienceFoundationforgenerousfinancial
channel
on physical
effect
supportprovided
to throughCAREERAwardIIS-0118767(to thethirdauthor)
term.
short
in
the
here
However,it is important
note thatthereis littlethatmedia firmscan do to and CAREERAwardCNS-0546009(to the fourthauthor).
ofdigitalchannelsgiventhe R. Telangalso acknowledgesfinancialsupportofAlfredR
thepenetration
forestall
StudiesFellowship.
associatedwith SloanFoundationIndustry
increasedease, speed,and flexibility
Rather,our
obtainingmedia in digitalenvironments.
be best
would
media
that
resultssuggest
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