Reports

Changing Their Tune: How Consumers’ Adoption of Online Streaming Affects Music Consumption and Discovery

Hannes Datta, George Knox, and Bart J. Bronnenberg, 2016, 16-136

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Streaming has rapidly become a predominant technology for the distribution and consumption of digital goods like music and movies. Unlike in the ownership model, when consumers purchase content, streaming services provide consumers access to vast libraries where content is free at the margin. Hence, the price of variety decreases for adopters of streaming.

Constructing a unique panel data set of individual consumers’ listening behavior on digital music platforms, the authors estimate the short-, medium-, and long-term effects of adopting a particular streaming service on quantity, variety and discovery of new digital content.

Among key findings, they find that consumer adoption of streaming leads to:

Increases in quantity of consumption. A half-year after users adopt Spotify, consumption, measured in play counts, is up by 43%.

Increases in variety of consumption. For example, the number of unique artists listened to increases by 36% six months after adopting streaming.

Increases in discovery of new music. Relative to music ownership where experimentation is expensive, repeat listening increases for consumers’ best new discoveries.

Implications

The results have implications for consumers and producers of music, and are also of interest to entertainment researchers, trade organizations (e.g., RIAA) and governmental agencies (e.g., FCC).

  • Streaming revenues are climbing not only because more consumers are adopting streaming, but because consumers’ overall consumption of music is growing as well.
  • Streaming creates a more level playing field for smaller artists; however, while it is easier to enter the consumption set, it is harder to stay there.
  • Streaming expands consumers’ attention to a wider set of artists, potentially increasing demand for complementary goods, like live performances.
  • Streaming alleviates a deadweight loss problem for varieties where valuation is positive but below the price of ownership.
  • Streaming increases consumer welfare by reducing search frictions (e.g., enhancing discovery) and helping users discover new high-value content.

Hannes Datta is Assistant Professor of Marketing and George Knox is Associate Professor of Marketing, both at Tilburg University, The Netherlands. Bart J. Bronnenberg is Professor of Marketing, Tilburg University, and Research Fellow in Industrial Organization, CEPR, London.

Acknowledgements

The authors thank Wes Hartmann and Puneet Manchanda for comments on an earlier draft. They are also grateful for comments from seminar participants at Amsterdam Business School, INSEAD, Tilburg University, the University of Cologne, the Catholic University of Leuven and Vlerick Business School, the University of Oxford, the University of Michigan, Yale University, Eurosonic Noorderslag, participants at the 2016 Marketing Science and Marketing Dynamics Conferences, and executives at Buma/Stemra, Sony Music and Spotify. The authors acknowledge financial support from the Netherlands Foundation for Science (NWO 453-09-004) and from the Marketing Science Institute (MSI 4-1854).

Related links

Digital Disruption: Insights from Spotify (2016) [Article]

How the Internet Has Changed the Marketing of Entertainment Goods: The Case of the Music Industry
Dominik Papies and Harald J. van Heerde (2015) [Report]

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