Revenue, New Products, and the Evolution of Music Quality since Napster

Recorded music revenue has fallen sharply since Napster’s appearance, by about 70 percent in North America and Europe, raising a serious question about the viability of continued investment in new recorded music products. The number of new works has risen significantly since 2000; but the number of new products is a poor indicator of the value that society derives from music given the skew in sales distributions. Using comprehensive digital sales data on the US, Canada, and 15 European countries, we infer the evolution of vintage quality from consumption data by time and vintage. We find that quality has increased since 2000 based on both North American and European consumption data. Our detailed data allow various decompositions of the quality index. First, we decompose by geographic origin, and we find that the increase in quality appears in both North American and European-origin music. Second, we decompose sales into the number of songs and sales per song, and we find that most of quality increase stems from growth in the number of songs. We explain the growth in quality despite the collapse of revenue by the fact that costs have fallen more than revenue, allowing strong growth in the number of new products. Moreover, because of the unpredictability of commercial appeal, growth in the number of products is akin to taking more draws from an urn and allowing the discovery of more products with substantial appeal.

Luis Aguiar, Néstor Duch-Brown, and Joel Waldfogel

Institute for Prospective Technological Studies Digital Economy Working Paper

2015

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