Intellectual Property Strategy and the Long Tail:
Evidence from the Recorded Music Industry [PDF], a new working paper from University of Toronto Strategic Management PhD candidate Laurina Zhang documents the rise in sales experienced by the music industry following the abandonment of DRM in digital music offerings.
The paper compares sales of 5,864 albums from 634 artists from before and after the music industry eliminated DRM, and finds an average rise of 10 percent in overall sales (though back-catalog experienced more of a lift compared to front-list titles). As TorrentFreak reports, "This effect holds up after controlling for factors such as album release dates, music genre and regular sales variations over time."
“Relaxing sharing restrictions does not impact all albums equally; it increases the sales of lower-selling albums (the “long tail”) significantly by 30% but does not benefit top-selling albums. My results are consistent with theory that shows lowering search costs can facilitate the discovery of niche products.”
According to Zhang, the 30% sales increase for lower-selling albums can be explained by the fact that DRM-free music makes it easier for consumers to share files and discover new music. The finding that removing DRM from top-selling albums has no effect on sales makes sense in this regard, since the discovery element is less important for well promoted musicians.
While DRM is still prevalent in the book industry and elsewhere, most of the major labels are now in agreement that it’s not a good fit for music.
What Piracy? Removing DRM Boosts Music Sales by 10 Percent