Social Media, Traditional Media, and Music Sales: A Panel VAR - PowerPoint PPT Presentation

Social Media, Traditional Media, and Music Sales: A Panel VAR Approach A Panel VAR Approach Jui Ramaprasad McGill University Presented to: U i University of Minnesota it f Mi t MIS Workshop April 15, 2011

2 Music Consumption Music Consumption 4/15/2011

Music Consumption: Competing with Free Music Consumption: Competing with Free • pre-napsterization: radio, live show, purchase CD pre napsterization: radio, live show, purchase CD • post-napsterization – [ sharing ] free, robust music catalog built by users, [ g ] , g y , portable format (napster) – [ subscription/streaming ] feels free (monthly charge), seamless ser interface rob st m sic catalog m sic seamless user interface, robust music catalog, music “on demand,” portable (rhapsody, the new napster, MOG, Thumbplay) – [ sampling ] free, music fans want to discover new music based on existing musical tastes, simple interface robust music catalog (pandora) interface, robust music catalog (pandora). 4/15/2011 3

Digitization of Music Consumption Digitization of Music Consumption • Music is an information good Music is an information good – shareable: easy to access and make available online – free: viable alternative digital ways of consuming music without purchasing, esp. at the song level – unbundled : can now “consume” music as individual songs, not just albums • Music is an experience good • M i i i d – learning and discovering : from traditional media (radio play) and social media (radio play) and social media 4/15/2011 4

Social Media and Music Social Media and Music “ Amy Kuney's "All Downhill From Here" has been listened to nearly 250,000 times on her Myspace page . Kuney, who is 25, is part of a new h i i f class of musicians who are bushwhacking their way to success. Kuney isn't necessarily trying to use the old formula of getting signed to a record label — which is becoming increasingly difficult as the business splinters. which is becoming increasingly difficult as the business splinters Instead she's using a variety of online tools — from social media to YouTube .” --Laura Sydell, NPR Laura Sydell NPR See also: The Real Value of 7 Million Facebook Fans 4/15/2011 5

Traditional vs Social Media Traditional vs. Social Media Lorenz Curves: Sampling and Spins 1 spins/samples 0.9 0.8 0.7 lative share of s 0 6 0.6 0.5 0.4 0.3 0 2 0.2 Cumu 0.1 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Cumulative share of songs from lowest to highest spins/sampling Sampling Spins Top 1% of songs sampled  8% of total sampling Top 1% of Songs played on the radio  50% of radio play Top 10% of songs sampled  40% of total sampling Top 10% of songs sampled  40% of total sampling Top 10% of songs played on the radio  90% of radio play Top 10% of songs played on the radio  90% of radio play 4/15/2011 6

Research Questions Research Questions • What is the relationship between social media What is the relationship between social media activity, traditional media activity and sales? – How does the relationship between traditional How does the relationship between traditional media and sales vs. social media and sales differ? – How does this relationship vary at the song-level How does this relationship vary at the song-level and the album-level? – How does this relationship vary for more How does this relationship vary for more “mainstream” vs. “niche” music? 4/15/2011 7

Decline in Music Purchasing Decline in Music Purchasing • Global recorded music sales fell by almost $1.5 Global recorded music sales fell by almost $1.5 billion (8.4%) to $15.9 billion in 2010 – Physical sales fell by 14.2% to $10.4 billion – Digital sales grew by 5.3% to $4.6 billion – Rate of digital revenue growth has halved year on year • United States: – Overall shipments of recorded music in the United States fell 11% to $6 9 billion States fell 11% to $6.9 billion. – Growth in digital formats only partially offset a decline of 20% by value in physical formats. 4/15/2011 8

Decrease in Album Sales Decrease in Album Sales Source: http://mashable.com/2011/04/08/napster-never-existed / 4/15/2011 9

Social Media and Music Consumption Social Media and Music Consumption • Awareness Awareness – Artists can share their music more easily to a broader audience broader audience – Consumers are exposed to a wider variety of music • Sharing • Sharing – Consumers have the ability to “sample” the music – Consumer can consume the music without C h i i h purchasing 4/15/2011 10

Literature Literature • Impact of Napsterization p p – Piracy has led to a decrease in music purchases (Rob and Waldfogel 2004) – Piracy has *not* led to a decrease in music sales Piracy has *not* led to a decrease in music sales (Oberholzer-Gee and Strumpf 2005) • Social Media & Music – Sampling on MySpace has a positive relationship with music purchases (Chen and Chellappa 2009) music purchases (Chen and Chellappa 2009) – Impact of social media on sampling is different for mainstream vs. niche music (Dewan and Ramaprasad 2010) 2010) 4/15/2011 11

Conceptual Framework Conceptual Framework Song Song Buzz Sales Album Album Buzz Sales Radio Play 4/15/2011 12

Panel Vector Auto-Regression (PVAR) Panel Vector Auto Regression (PVAR) • VAR model with panel data VAR model with panel data • Dynamic relationship among a set of endogenous variables endogenous variables • Each variable is a linear function of: – Past values of itself – Past values of all other variables – Error term 4/15/2011 13

Panel Vector Auto-regression Panel Vector Auto regression • Finance: – Financial Development and Investment Behavior (Love and Zicchino 2006) – Financial Positions and Investment (Stanca and Financial Positions and Investment (Stanca and Gallegati 1999) • Marketing – Marketing Investments on Sales (Dekimpe and Hanssens 1995) Hanssens 1995) – Differential impact of marketing-induced vs. WOM- induced customer acquisition (Villanueva et al. 2008) 4/15/2011 14

Model Model                        t t j j t t j j t t j j S S S S  t j   t 11 12 13 , S t         J         t j t j t j   B B         21 22 23 , t t j B t j 1                        t j j t j j t j j   R      R   31 32 33 , t R t t j • J is the order of model (determined by Akaike’s Information Criterion) • S B and R and denote song sales song buzz and • S t , B t , and R t and denote song sales, song buzz and radio play, respectively in time period t ( t=1,…,T ) • Similar model estimated at the album level 4/15/2011 15

PVAR: Model & Estimation PVAR: Model & Estimation • Lag Length Selection: AIC for each cross Lag Length Selection: AIC for each cross section  6 lags • Variable transformation: Natural Log & • Variable transformation: Natural Log & Forward mean differencing (Helmert Transformation) Transformation) • Estimated using GMM (following Love and Zi Zicchino 2006) hi 2006) 4/15/2011 16

Data Data • 993 cross-sections 993 cross-sections – Song-Level: Song Buzz, Song Sales, Radio Play – Album-Level: Album Buzz, Album Sales Album Level: Album Buzz Album Sales – Other: Record Label (Independent/Major), Artist Reputation Reputation • 24 weeks – June 19, 2006 – December 3, 2006 J 19 2006 D b 3 2006 4/15/2011 17

Summary Statistics: Mean (Std Dev ) Summary Statistics: Mean (Std. Dev.) Full Sample p Major Label j Independent Label p Radio Play 60.197 55.553 70.238 (# spins) (487.842) (323.731) (725.193) Song Sales Song Sales 359 477 359.477 322 685 322.685 439 075 439.075 (# units) (3295.174) (2092.771) (4986.696) Album Sales 1399.939 1429.907 1335.135 (# units) ( ) (5298.380) ( ) ( (5052.9) ) (5793.582 ) ( ) Song Buzz (768.327) 934.972 407.970 (# blog posts) 7724.130 (9251.646) (1844.706) Album Buzz 27.063 29.639 21.491 (# blog posts) (138.598) (135.183) (145.564) # of observations 23832 16296 7536 (993 songs) (679 songs) (314 songs) 4/15/2011 18

Summary Statistics: Mean (Std Dev ) Summary Statistics: Mean (Std. Dev.) Full Sample p High Artist Rep. g p Low Artist Rep. p Radio Play 60.197 226.512 37.552 (# spins) (487.842) (1157.973) (289.138) Song Sales Song Sales 359 477 359.477 1227 048 1227.048 241 324 241.324 (# units) (3295.174) (8004.678) (1870.009) Album Sales 1399.939 3762.568 1078.254 (# units) ( ) (5298.380) ( ) ( (9892.356 ) ) (4208.535) ( ) Song Buzz (768.327) 311.3789 (830.543) (# blog posts) 7724.130 (1512.064) 8212.332 Album Buzz 27.063 45.564 24.544 (# blog posts) (138.598) (93.829) (143.436) No. of observations 23832 2856 20976 (993 songs) (119 songs) (874 songs) 4/15/2011 19