Channels & Conflict: Response to Digital Media Distribution, Impact on Sales and Internet Piracy

Google Tech Talk August 17, 2010 ABSTRACT "Channels & Conflict: Consumer Response to Digital Media Distribution, and its Impact on Physical Sales and Internet Piracy" Presented by Michael D. Smith, with introduction by Hal Varian. The availability of digital channels for media distribution has raised several important questions for marketers, notably whether digital distribution channels will cannibalize physical sales and whether legitimate digital distribution channels will dissuade consumers from using (illegitimate) digital piracy channels. We examine these two questions using a series of "natural experiments" involving changes in the distribution of media on digital channels. Our results suggest that (1) online "free" distribution can complement legitimate purchases of media goods, (2) legitimate digital distribution channels can reduce the demand for piracy, and (3) that digital distribution is unlikely to cannibalize sales in physical channels in the short-term. Michael D. Smith is an Associate Professor of Information Systems and Marketing and co-director of the Center for Digital Media Research at Carnegie Mellon University. Dr. Smith's research relates to analyzing structure and competition in online markets and substitution effects between legitimate digital distribution channels, piracy channels, and physical channels for media products. His research in this area has been published by outlets including The Economist, The Wall Street Journal, Sloan Management Review, The New York Times, Wired Magazine, Time Magazine and Business Week. He also jointly conducted some of the first academic research into the social welfare impact of increased product variety in Internet markets. This work was cited in Chris Anderson's "The Long Tail."