Author: Laurina Zhang
Abstract: Digitization has impacted firm profitability in many media industries by lowering the cost of copying and sharing creative works. I examine the impact of digital rights management (DRM) – a prevalent strategy used by firms in media industries to address piracy concerns – on music sales. I exploit a natural experiment, where different labels remove DRM from their entire catalogue of music at different times, to examine whether relaxing an album’s sharing restrictions increases sales. Using a large sample of albums from all four major record labels, I find that removing DRM increases digital music sales by 10% but relaxing sharing restrictions does not impact all albums equally. It increases the sales of lower-selling albums (i.e., the “long tail”) significantly (30%) but does not benefit top-selling albums. These results suggest that the optimal strength of copyright depends on the distribution of products in firms’ portfolio.
