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Digital distribution

From Wikipedia, the free encyclopedia

Digital distribution (also referred to as content delivery, online distribution, or electronic software distribution (ESD), among others) is the delivery or distribution of digital media content such as audio, video, software and video games.[1] The term is generally used to describe distribution over an online delivery medium, such as the Internet, thus bypassing physical distribution methods, such as paper, optical discs, and VHS videocassettes. The term online distribution is typically applied to freestanding products; downloadable add-ons for other products are more commonly known as downloadable content. With the advancement of network bandwidth capabilities, online distribution became prominent in the 21st century.

Content distributed online may be streamed or downloaded, and often consists of books, films and television programs, music, software, and video games. Streaming involves downloading and using content at a user's request, or "on-demand", rather than allowing a user to store it permanently. In contrast, fully downloading content to a hard drive or other form of storage media may allow offline access in the future.

Specialist networks known as content delivery networks help distribute content over the Internet by ensuring both high availability and high performance. Alternative technologies for content delivery include peer-to-peer file sharing technologies. Alternatively, content delivery platforms create and syndicate content remotely, acting like hosted content management systems.

However, the term is also used in film distribution to describe distribution of content through physical media, in opposition to distribution by analog media such as photographic film and magnetic tape (see digital cinema).

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Transcription

>> It's my great pleasure to introduce Michael D. Smith. If your name is Michael Smith, that D is very important. And this will allow you to Google him if you want to get a copy of the paper. Shall I zoom this up on your… >> SMITH: Zoom this up, yeah. >> …website? I've known Michael for, what, seven years maybe, six or seven years. We met when he was right out of grad school and he's done some fantastic work in this area of marketing, online activity, intellectual property and a number of other areas of that sort. So, welcome to Google. >> SMITH: All right. Thank you, Hal. That's a wonderful introduction. It's a wonderful opportunity to be here. I'm really excited to talk to you all. And I should acknowledge right up front, thank Google and WPP for providing funding for this stream of research that we're doing. So the talk I'm going to give is entitled, "Channels and Conflict: Consumer Response to Digital Distribution Channels." This is joint work with my colleagues, Rahul Telang, who is co-director with me of the Center for Digital Media Research at Carnegie Mellon, and our very fine doctoral students, Brett Danaher, Samita Dhanasobhon, and Anuj Kumar. What I'm going to try to do is present three papers on the same theme, okay? And so the theme is sort of motivated in part by--you know, if you can think back to the heady days of 1998 and the speculation about what was going to happen when you added Internet markets. So there are a lot of wonderful quotes. One of them, this nice quote in Business Week that says, "The Internet's a nearly perfect market. Information is instantaneous and the result is fierce price competition, dwindling product differentiation, and vanishing brand loyalty." And that was sort of part of the conventional wisdom in 1998, untested by data. And it turns out if you go out and you look at the data for what actually happened in Internet markets, not all of these hypotheses hold up. There's a lot of price dispersion, brand matters a whole lot, and if you don't believe me, you can Google that and, you know, and product differentiation still matters. What we wonder is whether we're in a very similar time right now with respect to digital media in the sense that there's a lot of conventional wisdom about how consumers will approach digital media channels and very little of it is tested rigorously and empirically. So here are two representative quotes; one from James Gianopulos, chairman of 20th Century Fox, "When people say, 'Reinvent your business model because of the ubiquitous availability of piracy,' there's a huge flaw in that. You can never compete with free. That's an economic paradigm that doesn't work," okay? On the flip side of this is Steve Jobs by no means a disinterested observer in this debate, but Steve Jobs saying, "You'll never stop piracy. What you have to do is compete with it." Okay? So this interesting question, "How do I compete with free in general, and in particular how do I compete with free pirated content? Can I ever get those consumers back? And if I can, what does that look like?" The second debate is, in my mind, almost as interesting if not more interesting, the question about, "If I add a digital distribution channel, what is that going to do to consumption in my existing physical channels?" And here, I think the conventional wisdom is in the industry that when I add a digital distribution channel it's going to primarily cannibalize my existing physical channel. So a set of quotes; Jeff Zucker, CEO of NBC University--Universal: "Our challenge is to monetize these digital channels. We don't end up--want to end up trading analog dollars for digital pennies," okay? Another one from Netflix, also not a disinterested observer, but saying, "When studios distribute through Amazon Unbox, they're cannibalizing--they're within the DVD window and they're cannibalizing their own sales." And the last one, unfortunately, I'm not able to get a good quote on this for soon-to-be obvious reasons, but apparently when Disney started selling their movies on iTunes, Wal-Mart which makes up something like 35% to 40% of their sales was so annoyed by this that they sent back crates and crates of Disney DVDs in protest. Target did a very similar thing; took down Disney encaps and replaced them with their competitors. And my favorite piece of this is if you believe the press reports, Wal-Mart sent out emissaries to Hollywood threatening to retaliate if any other studios followed Disney into the iTunes store, okay? I don't know if horse heads were involved, but nonetheless, it's a rather strong response. Possibly, yes, possibly unicorns. So these are the research questions we're interested, "Can you compete with free? And what does that look like? And then what's the dominant impact of adding these digital distribution channels? Does it cannibalize your physical sales or might it have an impact on piracy?" And not to spoil the punch line for you but what I'm hoping to convince you is that, number one, you can compete with free. Distributing content for free actually can stimulate sales of paid product for the same content. And number two is that the dominant impact of adding a paid digital distribution channel seems to be reducing the demand for piracy and having no effect on existing DVD sales, okay? And I'll try to--I'll try to get through the talk and leave some time at the end where we can interact on these questions and I hope we can have a healthy, fun discussion around these, okay? This contributes to a couple of different academic literatures. I won't spend a whole lot of time on these. The first one is there've been a set of very interesting papers looking at the impact of, primarily, music piracy on sales of CDs, primarily. And typically, these papers I'm going to oversimplify them but typically, these papers take Napster as an event and look at what the introduction of Napster did to sales of CDs. And these papers acknowledged the important question which is, you know, "When they find that Napster resulted in a reduced--a reduction in CD sales, is that because Napster was free or is that because Napster was digital?" That is, "Is that because I wanted to get the content for free," or is that because, "Napster was just so darn easy for me to use compared to going down to BestBuy or, you know, HMV or what have you and browsing through the sales of--browsing through the racks of physical CDs?" There've been a couple other studies on video. The one I want to highlight partially selfishly and partially topically is a paper Rahul and I wrote where we looked at what happens to DVD sales around the time a movie is broadcast on television. And what we found is that when a movie is broadcast on television, there's almost an immediate uptick in demand for DVDs on Amazon and in demand for piracy, that that the availability of content, we sort of used that as an exogenous shock and then say that the availability of content on piracy whether the movie is available or not doesn't seem to affect the uptick in DVD sales, okay? Which kind of had us scratching our heads because we really do believe piracy hurts. But here we were seeing, you know, here we were seeing something that sort of, I don't know, challenged that view where the presence of piracy on the digital channel wasn't affecting DVD sales. And so what we wanted to come back and do is try to gather data that would help us explore that question in a little bit more detail, so. And the way we're going to do this is with exogenous shocks in the market. So there's some classic challenges associated with measuring the impact of piracy. You know, if I regress demand for piracy on demand for sales, you have an obvious endogeneity problem. How do I break that endogeneity? Okay, so let me--let me talk about the data sets that we used for the first two studies. So for the first two studies, we went out and gathered data. The first place we gathered it was amazon.com. And I had a very bright doctoral student who went in and realized that if you indexed the Amazon top 100 selling DVDs and added 200 in place of 100 in the URL, you could sort of scrape the whole site. What was fun is that 48 hours later, that ability went away. So somebody was watching, but fortunately, she had all the SIN. So she has been scraping every DVD sold by Amazon on a daily basis; collecting the price, you know, characteristics of the DVD, and importantly, the DVD sales rank, okay? So we're going to use that sales rank as a signal of changes in absolute sales. So it turns out if you assume a Pareto relationship between the ordinal sales rank and the cardinal number of sales that you can--that you can impute a change in sales rank as a percent change in sales. We have that for all DVDs at Amazon from November 2006, hopefully, through yesterday if things are going well. And, you know, these numbers seem so much more impressive when we present them to academic audiences. They're much less impressive when you present them here at Google. So you'll forgive me for my humble data count here. The flip side of this is how do you measure piracy? So we scratched our heads for a long time about how do you get a reliable measure of, you know, a reliable signal of piracy demand. And we finally decided to go to the oracle of all piracy knowledge. I asked one of my undergrad classes how they steal movies. And they cheerfully answered back that at least at that time the primary tool they use was BitTorrent. So we found the most popular BitTorrent tracker site, Mininova, at the time, indexed all of Mininova's television content, movies, and videogames, and that we're going to use television content for this. So we have a daily scrape--and, again, this sounds much more impressive in other context, but we have a daily scrape of every torrent posted to Mininova including the number of seeders, number of leechers, and cumulative number of downloads. So we're going to--we're going to use that. We're going to use primarily the downloads as a signal of changes in demand for these pieces of content. We're going to go through a fun exercise of trying to code the names of the torrents. Sadly, pirates aren't all that disciplined about adding good metadata to their torrent names, but we're going to go through an exercise of trying to code these back to the right pieces of content and we're going to use that. We've got data from November 2007 up through last November when Mininova started filtering their content. And, again, we've got what we believe to be a fair number of observations, at least for somebody working for pizza and on an old computer. Okay, so I totally--let's start gathering this and let's just wait for fun things to happen in the market, all right? So the fun thing number one was NBC kindly, presumably to support the academic research endeavor, decided to pull all of their content from Amazon, so--or from Apple. So NBC got into a fight with Apple about a variety of things; some of them revenue, some of them pricing, and some of them content protection. But the upshot is that in--on December 1st of 2007, they removed all of their television content from Apple iTunes and restored it later in September of '08. I'm going to focus on the December event. We can talk about what happened in September, okay? So this gives us the nice sort of event that we want to have. We've got a set of consumers cheerfully buying iTunes content from NBC, and on December 1st, they can't anymore. Where do they go, okay? So we're going to extract again the piracy in DVD data and we're going to use this as a sort of a difference-in-difference or control treatment group model. We're going to use--we're going to try to measure NBC--changes in NBC's piracy and changes in NBC's DVD sales with ABC, CBS, and Fox as the control group, okay? All right. What I need to convince you though is that ABC and CBS piracy looks like NBC's piracy in the before period. That is ABC, CBS, and Fox are a decent control group for NBC in the before period for this to work. So let me see if I can convince you of that with a pre-treatment falsification test. The model we've got is the log of downloads on to date dummies, episode dummies, and then an NBC indicator for the actual event. And what I'm hoping to find is that in the period before NBC took their content off of iTunes that that dummy variable for NBC is insignificant and in the period after it, it's significant. And you already know the answer to this question, this is sort of the chart of the conditional values and what you find is that NBC seems to map non-NBC pretty well in the period right up to December 1st. And then after that, we see that NBC piracy levels are higher than ABC, CBS, and Fox, okay? In percentage terms, we can run this and just stare at the coefficients, we interpret these coefficients as percentages. And what this is saying is that the demand for NBC piracy increased by about 11% in the period after they removed their content. And I should point out this is--we have data up through Christmas. I'd love to tell a wonderful story about how we decided to exclude the Christmas holiday period. The fact of the matter is my very talented doctoral student went home for Christmas over the holidays and right about Christmas, Mininova changed the way they indexed their pages and so I'm not entirely sure anymore what happened after Christmas. But I can say, you know, with a reasonable amount of confidence that up until Christmas this was an 11% increase. The other interesting thing going on here is this variable says what happened to non-NBC piracy during the same time period. It's statistically, you know, marginally significant and it's not well-identified. I don't know what would have happened had NBC not done this. But if you just--if you just interpret that on the face of it what it's saying is, not only was there an 11% increase in NBC piracy but there was an additional five to six percent increase in non-NBC piracy. Which might mean that these consumers who were buying on iTunes and decided to go pirate their content through BitTorrent not only pirated the NBC content but also pirated some ABC, CBS, and Fox content while they were there, okay? Does that make sense? All right. Oh, I'm sorry--go ahead. >> Just one clarification question for the thoughts on CBS data, they're all--they were all on iTunes the whole time? >> SMITH: They were all on iTunes during the whole time, so it's a proper control group, yeah. >> And they are available on the computer [INDISTINCT] >> The nice thing about this is Hulu was still in private beta during this time frame so the number of Hulu users was relatively small and there was no big changes in distribution--digital distribution for any of these folks. So a good question. So the other thing you can do with this data is you can carve it up by genre. So if you wanted to characterize the typical pirate as a young male, this data would be consistent with that view. So what we see is a much bigger uptick in demand for pirated content for sci-fi shows, comedy, and to a lesser degree, action, than for drama, okay? I don't know--I don't want to push this too hard but you could draw your own conclusions from this. So then we can go and do exactly the same test on DVD sales at Amazon. So here the dependent variable is the natural log of Amazon sales rank. And we're measuring sales of NBC DVD box sets for television versus ABC, CBS, and Fox DVD box sets for television. And what you find is no statistically interesting change in sales for NBC content relative to ABS, CBS, and Fox, okay? So you scratch your head for a little while about this. Second event is ABC and Hulu, okay? So here we have NBC, CBS, and Fox are showing programs on Hulu. Disney announces that they're going to add there content to Hulu. And we can do basically the same thing just in--just in reverse, all right? So May 1st of 2009, ABC announces they're going to add their content. July 6th, ABC starts streaming their TV shows to Hulu. We're going to use the same difference-in-difference model. We have eight ABC shows and 42 non-ABC shows, and these are just the shows after eliminating categories where that, you know, that might be unusual. So game shows, reality shows, talk shows, these are sort of the, you know, might be systematically different. And we're going to look at a two-week period before and after July 6th of 2009, okay? So here again, we're going to interact the ABC variable with the after variable and what you find is about a 37% decrease in piracy in the two-week period after ABC adds their content to Hulu, which is larger than I was expecting but it's statistically significant. I've asked Samita to beat this up in a variety of different ways and it just doesn't go away. So a huge decrease in the demand for piracy. And then if you look at DVD sales, you know, nothing statistically significant. If anything, it's directionally negative. Which again, because these are sales rank, a decrease in sales rank actually means an increase in sales. So if anything, there's a slight increase in sales but not in any statistically significant way, okay? Yes? >> I would like to [INDISTINCT]. In this case, [INDISTINCT]. >> SMITH: Yeah. So this is--this is--so, as I understand the question, what you're saying is we're looking at the two different contexts. iTunes is one where I pay for the content and I get it, whereas Hulu is one where I get it for free or free with commercials, so they are different contexts. Yeah, and I'd buy that completely. And that's part of the reason I think, you know, it's kind of interesting that the DVD sales changes directionally positive, right? I think broadcasting--so if you go back to what I said about the paper Rahul and I did with what does television do; what's the dominant impact of broadcasting the whole movie on television? It's to encourage people to go out and buy the DVD. Here we've got a setting where you put it up on Hulu, I can get the whole piece of content and it might be encouraging some people, although not a statistically significant number of them, but it might be encouraging some people to become interested in that content and possibly buy it on DVD. Yeah? >> But could you make sales for exactly the same episode or same season or? >> SMITH: Exactly the same series, yeah. So, typically, the DVDs are released in season long so it was exactly the same series and the same seasons that were being put up there. Good question. Any other questions on this? >> For that series, was it the most recent one or you were looking at the previous series? >> SMITH: We were looking at whatever they were putting up. So that's a good point. I have to ask Samita. I would suspect what she did was a match set, because I know that's what we did in the NBC study, a match set of DVDs and whatever seed, but they had to be available on both sides. Whatever DVD was available matched with the season that was also available. I think that's right. Yeah? >> Well, were you able to look at [INDISTINCT], were you able to look at the whether there was impact on ratings of the actual broadcast in terms of movies you're concerned of? >> SMITH: I haven't done that. I would love--I would love to do that, right? There's a bunch of anecdotal evidence and speculation that, you know, shows like, "It's Always Sunny in Philadelphia" gained a following through Hulu and then became popular on broadcast. It's a natural spillover. I just haven't found the data to identify it. It's a cool question. Any other questions on this? All right. So the summary here; ABC's availability on Hulu is correlated with a 37% decrease in piracy and no change in DVD sales. So we see a similar effect here to what we saw before. Let me--and what I'd like to do is spend the last half hour focusing on the last paper. This last paper is the most recent so this is very much work in progress. So I'm hoping we can crowd-source some, you know, some other cool analysis we should be doing on this. And this is also the paper that Google, and Hal, and WPP are supporting, okay? So we found a studio; let's call them studio X for a moment. And studio X has a problem that all studios do. When they license their movies to HBO, HBO asks for an exclusive broadcast license, which means that you can't also show it to other competing channels but it also means that you've got to take it off your other digital distribution channels. So studio X has to take it off Video on Demand and they have to take it off of iTunes. So we have a very similar structure. We have, you know, movie enters the theatrical window. About 28 weeks later, it goes into the DVD window and it's typically released DVD, iTunes, and Video on Demand all at the same time. And then when it enters the HBO window, they have to take it off of Video on Demand and EST. It stays up on DVD primarily because there's just no way to get it out of the channel once it's--once it's in the physical channel. And it stays up on piracy, obviously, pretty much through this whole period. Now, the first--the first challenge we had was how do you isolate the window effect from the broadcast effect? Again, this previous paper suggests when you broadcast a movie, DVD demand increases. The fun thing about this is that when you--the contract with HBO starts on the first of the month that the movie is broadcast on HBO and the first broadcast of the month is almost always the first, second, or third Saturday of the month. And so we're going to use that variation between the first of the month and the first, second, or third Saturday in the month as a way to identify the window effect from the broadcast effect, if that makes sense. Okay, all right. So very similar questions, "Where do these customers go?" Except here, we get to look at hopefully both former Video on Demand customers and former iTunes customers separately. So where do former Video on Demand customers go when they can't get on Video on Demand anymore? And where do former iTunes customers go when they can't get it on iTunes anymore? And also, you know, what does this--what does the broadcast do as well, another example of competing with free, okay? All right. The data we got from studio X was their DVD, VOD, and EST sales for ten movies that entered the HBO blackout window from December '09 through March of '10. We have each of these data add a DMA level for the top 153 DMAs in the United States. DMAs are sort of regions of the country. Is everybody familiar with--okay. And we have the--we have weekly observations of peer-to-peer activity through one of their vendors, also broken out by DMA based on the IP number of the person committing the piracy, okay? All right. So we're going to use the HBO window--entering the HBO window as an exogenous shock to demand for both VOD and iTunes, okay? So first thing I need to convince you of is that entering this window is exogenous as news we can tell it is. So talking to studio X, they negotiate with HBO sort of collectively for all their movies and determine a period of time after theatrical where it's going to enter the HBO window and that's set before they ever see what the DVD demand is, okay? It's also comforting that when you go and look at the lag between when it leaves the theater and when it enters the HBO window there's no systematic difference in that lag as a function of either DVD sales or theatrical sales. This really does look like an exogenous shock, okay? And as I mentioned before, we're going to try to exploit the lag between the introduction of the window and the broadcast to try to isolate out both the broadcast effect and the window effect--or broadcast effect, the entering the window effect from the broadcast effect. Does that make sense? Okay. If you do this--so the simple model for this shows that there's an increase in both DVD and piracy demand when it enters the window, although not particularly large and not statistically significant, and then there's a big increase for both of them when you broadcast. Let me show you the model that's going to tease out the two effects I want to see. So this model, I've got "S" is either the log of DVD sales of piracy for movie "i" in DMA "j" in week "t" after DVD release date, or piracy for movie "i" DMA "j" in week "t." I've got a set of movie fixed effects of DMA fixed effects of dummy variables. At the end, I'm going to try to dummy out the Christmas weeks for those that were released over Christmas. And then what I'm going to try to do is I've got a dummy variable for the HBO window, which is here. I've got a dummy variable for the broadcast period. So a separate--I want to try to separate out the broadcast period. And then what I'm going to try to do is I'm going to take a prediction of what the lost sales on VOD would look like for movie "i" DMA "j" in time period "t." So we just use a couple different exponential decay curves. It's not particularly sensitive to this, but I'm going to try to predict what would VOD sales have been for this movie in this DMA. And I'm also going to try to predict what would iTunes sales have been for this movie in this DMA and I'm going to interact those two variables with a dummy variable for the broadcast period, okay? And what I'm hoping here is if this tells me, for DMAs with high levels of VOD sales, did they have a higher than normal change in DVD sales and change in piracy? And DVDs with higher than normal iTunes sales, do they have a higher than normal change in DVD sales and piracy? Okay? Does that make sense? All right, cool. And so this is what we see. So if you--if you look at changes in DVD sales, you can see an increase in sales during the blackout period, although not statistically significant. You can see an increase on sales during the broadcast period, consumers see this on HBO and go out and buy the DVD. You can see an uptick in DVD sales for DMAs that have high--that have high VOD sales. So lost VOD sales seem to be moving towards DVD sales. I see no statistical change in DVD sales as a function of DMAs that have high levels of iTunes--of lost iTunes sales. And on the flipside for piracy, I see similar coefficients over here, showing the movie on HBO leads to an increase in the demand for piracy as we've seen them in other papers. And DMAs that have a large number of VOD sales have no statistically significant increase in piracy. And DMAs that have a high Lost EST sales have a statically significant positive increase in piracy, okay? Another way to see this is you can just plot the lost EST sales and lost VOD sales as a function of the conditional predicted VOD--DMA--DVD sales and piracy. And again, what you find is, you know, a nice--a nice strong correlation here, not much correlation here and not much correlation for DVD sales, but a nice strong correlation for the change for DMAs that have higher levels of lost EST sales with respect to increases in piracy. Does that make sense? All right, cool. Bob had asked me to finish in about 40 minutes and I think we've actually done that. So the punch line here I think is, it sure does start to look like it's possible to compete with free. Now this isn't a huge shock for marketers, right? Competing with free is really just a special case of price competition. I've got to figure out a way to differentiate the paid product from the free product. And what this--what this suggests is that I can differentiate that in a bunch of different ways. I can differentiate that based on usability, based on convenience, what have you, but showing it on television, showing it on HBO, and apparently, potentially, showing it on things like Hulu might increase the demand for the paid pieces of those content. The other one that I like is that consumers sure seem to be much more tied to their mode of consumption than they are to the legality of their consumption. So I think the conventional wisdom in the industry was you've got a set of pirates and you've got a set of legitimate purchasers. The pirates, you're never going to be able to get back and the legitimate purchasers are going to choose between your physical channels and your digital channels. If I had a digital channel, it's going to suck away people from the physical channel without sucking away many people from piracy. And we see in each of these three cases exactly the opposite, that adding a digital channel, you know, at a reasonable price and a reasonably convenient format reduces the demand for piracy and doesn't have a big impact on the demand for the physical good. The way--and I--I'd be interested in interacting on this, but the way I think about this is I think consumers decide, "I want to consume digitally." And once I decide I want to consume digitally, I'm going to find it, at least some of these consumers are going to find it in a legitimate channel if I can, and if I can't, I'm going to steal it, or whatever you're preferred word is for piracy, okay? The other piece here is I think there are a bunch of interesting opportunities to try to understand the impact of these digital channels through these--these sorts of natural experiments. And so we're out here talking to different companies. We're talking to Facebook earlier today, talking to Yahoo tomorrow to try to see if we can identify some of these experiments or changes in digital distribution and use them as ways to better understand how consumers respond, okay? All right. So I think almost at 40 minutes. I would love to take questions and interact on this because I know you guys have seen some interesting experiments along these lines. Sure. >> [INDISTINCT] dug up that although, Google might [INDISTINCT]. >> SMITH: Yeah. We talk--so the--I'm sorry, yeah. The question was, "Have we looked at revenue impacts?" Is--as I, you know, one interesting question off of that is, "Is it true that the digital channel is lower margin than the physical channel?" I don't know whether that's--I don't know whether that's true or not. And I'm not sure the studios have a good--have a good idea of whether that's--whether that's true or not. You could imagine a world where, you know, I cut out a whole bunch of production phases and I cut out a whole bunch of middle men and I can go directly and get higher margins. I could also imagine a world where the competition from piracy leads to lower margins. I don't know. With studio X, we were interested in a different question for them. And--yeah? >> [INDISTINCT] related to that, it's actually, if you're moving to a digital method as you--your point here, then actually--and then half of that is, let's say to piracy, "How are you at digital content?" through from a analog and converting that to a lower [INDISTINCT]? >> SMITH: That's the fear, right? >> I mean, my point about this is it seemed more just, you know, because of today, just the way the technology is, you know, you either have to choose one of the other [INDISTINCT] or you don't and that changes it if you have more Internet connected TVs [INDISTINCT]? >> SMITH: Yes, this is the challenge. And again, I think the conventional wisdom in the industry was if we ignore these digital distribution channels we'll keep people longer in these higher margin physical channels. That is, you know, adding a digital distribution channel will cause people who otherwise would have bought physical to go over to digital distribution. And we don't--you know, while that's possible, we don't see that in the data. It sure looks like the people who want to consume digitally are already gone and they're getting it in another way. So, you know, managerially, you might worry about, "Am I--am I leading consumers to a lower margin channel?" I don't know whether it's lower margin or not but I think practically it sure looks like the consumers are going to figure that out on their own and go there directly. So I'm not sure how. >> HAL: So how rapid is the response time is being seen after the broadcast and the uptick in the channel distribution? >> SMITH: That--good question. So Hal's question, I'll try to remember. If I forget to repeat the question, somebody raise their hand. But Hal's question is, "How rapid is the increase in DVD sales?" I know this best. For studio X, they gave us weekly DVD sales, so I can't see it with a whole lot of granularity. I know it best for the previous study we did where we were looking at it on an hour by hour basis. And in fact, if you sit with your browser open--if you're geeky enough to sit with your browser open, and I know Hal is, while a movie shows on television, you can almost see an uptick in sales rank almost immediately after the movie stops showing on the East Coast. Or it's really--it's a beautiful thing. >> HAL: Okay. So, the interesting thing then would be we just designed that experiments where you release something and we tease something else a few days later. Well, let's say, synchronize the releases so that you have your [INDISTINCT] without another? >> SMITH: Yes. >> HAL: So, then you [INDISTINCT] very rapid, maybe with just a couple of days, staggering releases would give you a lot of information about it. >> SMITH: Yeah, that's what--that's what we're hoping to find settings where we can do cool things like that because, again, I think that's how the industry is going to move forward is understanding these subtle changes to how consumers respond to their digital distribution channels. Yeah, it's a very good idea. There's one question back here. >> [INDISTINCT] in terms of availability [INDISTINCT] when it's available on the piracy [INDISTINCT]. >> SMITH: We have--we're looking at that question. It's probably the best way to put it. We think we've got a cool experiment. And so, the--I'm sorry, the question is, "Have you looked at the impact of prices?" That is, "How sensitive are people, you know, is $3--is an iTunes episode at $3, is there a significant amount of elasticity versus an iTunes episode sold at $2?" The anecdotal evidence I've read suggests that the change in iTunes music pricing from 99 cents to $1.19 actually showed a fair amount of elasticity and we're hoping to look at that question. The other related question is actually dealt with in the first paper I presented; the NBC paper. So what we tried to do--again, as an economist, if I see somebody buying something on iTunes that they could get for free my perverse response to that is there must be some non-monetary cost associated with free or else this person would have--wouldn't have bought it, they would have gotten it for free. So the question is, "Is that non-monetary cost a marginal cost?" You know, "Is it that each download I make just has less usability or less convenience and that's why I choose to get it on iTunes?" Or is there a fixed cost, right? Is it that, "I don't know how to use BitTorrent and there's this big fixed cost associated with that and that's what's keeping me away." And in the NBC paper, all the results we got sure pointed towards a fixed cost component that, you know, people were avoiding BitTorrent because they didn't know how to use it. Once they couldn't get it on iTunes anymore, they invested that fixed cost and then they were harder to get back. >> [INDISTINCT] what's the value of my [INDISTINCT] >> SMITH: Yeah. So--no, it's a great point. So, the question is, you know, as I understand it, what's the--is there also a moral component associated with this or is it sort of my consciousness? I'm aware of this. The other piece we explored was, "Is there a moral component?" And originally, we thought a moral component would primarily have a marginal cost effect that, you know, sort of each time Bob--I shouldn't use real names--each time--each time this gentleman sitting here pirates something, you know, he gets a slightly more a bad feeling about himself. We presented this to our faculty, who includes some very prominent criminologists who said, "You know what, the literature says that actually there's a fixed cost to crime that the first crime you commit is the hardest one and after that it becomes much easier." So we had to model the moral cost as both a fixed in and a marginal component. But everything lined up with sort of fixed cost. So, you know, maybe it's when you sell your soul to piracy it becomes much easier to pirate over that and I see some people nodding. >> Well, I know it's a lot, you might as well hang for a cow than hang for cheese. >> SMITH: Okay. That'd be a good title for a paper, actually. Sure. >> Have you looked at any impacts of [INDISTINCT] because you mentioned being in [INDISTINCT] in some ways are [INDISTINCT]? >> SMITH: Right. It's an interesting question. I haven't looked at that, right? But you can stare at iTunes and you can wonder whether the DRM that Apple was able to control created this wonderful ecosystem for them where the more iTunes you bought the more you wanted to buy iPods, and the more iPods you bought the more you wanted to buy from iTunes, and churn them into whatever market share they have, you know, 90% market share, which makes them a very tough downstream negotiating partner for all these--all these record companies. You know, that they--like Wal-Mart does in DVDs, Apple can be a very tough downstream negotiating partner and you wonder how of much that is due to just Steve Jobs being brilliant and how much of that is due to the DRM scheme that was put in place that was proprietary. It's an interesting question. Yeah? >> It's interesting you have access to video in DMA level, did you see any difference in the behavior between different DMAs? >> SMITH: Yeah, there's a pretty dramatic difference. The question--thank you, Bob. The question was, "Do you see any difference in behavior across DMAs?" And the answer is, yes. There's, you know, obviously, there's a correlation. You know, DMAs that have high iTunes sales also have high VOD sales, but there's enough variation and there's a decent amount of variation across these DMAs that we were able to identify. And I should have pointed out that the model has--we cluster the standard errors at the movie level, so we're controlling for potential correlation across the different DMAs. But there's enough variation there that you can pull it out. It's kind of cool. I don't know how to take questions from these nice people up on the screen. Okay, cool. Any other questions? Any other personal anecdotes? The nice thing is the camera isn't facing on you. Do we have any questions from our audience in the cloud? Can you guys still hear me in the cloud? Okay, they're all--they're putting thumbs up. Okay, no questions then. All right. Well thank you very much. I think we ended a little bit early. I appreciate it.

Contents

Basis

A primary characteristic of online distribution is its direct nature. To make a commercially successful work, artists usually must enter their industry's publishing chain. Publishers help artists advertise, fund and distribute their work to retail outlets. In some industries, particularly video games, artists find themselves bound to publishers, and in many cases unable to make the content they want; the publisher might not think it will profit well. This can quickly lead to the standardization of the content and to the stifling of new, potentially risky ideas.

By opting for online distribution, an artist can get their work into the public sphere of interest easily with potentially minimum business overhead. This often leads to cheaper goods for the consumer, increased profits for the artists, as well as increased artistic freedom. Online distribution platforms often contain or act as a form of digital rights management.

Online distribution also opens the door to new business models (e.g., the Open Music Model). For instance, an artist could release one track from an album or one chapter from a book at a time instead of waiting for them all to be completed. This either gives them a cash boost to help continue their projects or warns that their work is not financially viable. This is hopefully done before they have spent excessive money and time on a project deemed unviable. Video games have increased flexibility in this area, demonstrated by micropayment models. A clear result of these new models is their accessibility to smaller artists or artist teams who do not have the time, funds, or expertise to make a new product in one go.

An example of this can be found in the music industry. Indie artists may access the same distribution channels as major record labels, with potentially fewer restrictions and manufacturing costs.[1] There is a growing collection of 'Internet labels' that offer distribution to unsigned or independent artists directly to online music stores, and in some cases marketing and promotion services. Further, many bands are able to bypass this completely, and offer their music for sale via their own independently controlled websites.

An issue is the large number of incompatible formats in which content is delivered, restricting the devices that may be used, or making data conversion necessary.

Impact on traditional retail

The rise of online distribution has provided controversy for the traditional business models and resulted in challenges as well as new opportunities for traditional retailers and publishers. Online distribution affects all of the traditional media markets including music, press, and broadcasting. In Britain, the iPlayer, a software application for streaming television and radio, accounts for 5% of all bandwidth used in the United Kingdom.[2]

Music

The move towards online distribution led to a dip in sales in the 2000s when CD sales were nearly cut in half.[3] One such example of online distribution taking its toll on a retailer is the Canadian music chain Sam the Record Man who blamed online distribution for having to close a number of its traditional retail venues in 2007–08.[4] One main reason that sales took such a big hit was that unlicensed downloads of digital music was very accessible. With copyright infringement affecting sales, the music industry realized it needed to change its business model to keep up with the rapidly changing technology.[5] The step that was taken to move the music industry into the online space has been successful for several reasons. The development of lossy audio compression file formats such as MP3, allows users to compress music files into a high quality format, compressed down to usually a 3-megabyte (MB) file. The lossless FLAC format may require only a few megabytes more. In comparison, the same song might require 30–40 megabytes of storage on a CD.[5] The smaller file size yields much greater Internet transfer speeds.

The transition into the online space has boosted sales, and profit for some artists. It has also allowed for potentially lower expenses such as lower coordination costs, lower distribution costs, as well as the possibility for redistributed total profits.[5] These lower costs have aided new artists in breaking onto the scene and gaining recognition. In the past, some emerging artists have struggled to find a way to market themselves and compete in the various distribution channels. The Internet may give artists more control over their music in terms of ownership, rights, creative process, pricing, and more. In addition to providing global users with easier access to content, online stores allow users to choose the songs they wish instead of having to purchase an entire album from which there may only be one or two titles that the buyer enjoys.

The number of downloaded single tracks rose from 160 million in 2004 to 795 million in 2006 which accounted for a revenue boost from US$397 million to US$2 billion.[5]

Videos

Many traditional network television shows, movies and other video content is now available online, either from the content owner directly or from third party services. YouTube, Netflix, Hulu, Vudu, Amazon Prime Video, DirecTV, SlingTV and other Internet-based video services allow content owners to let users access their content on computers, smart phones, tablets or by using appliances such as video game consoles, set-top boxes or Smart TVs.

Many film distributors also include a Digital Copy, also called Digital HD, with Blu-ray disc, Ultra HD Blu-ray, 3D Blu-ray or a DVD.

Books

Some companies, such as Bookmasters Distribution, which invested US$4.5 million in upgrading its equipment and operating systems, have had to direct capital toward keeping up with the changes in technology. The phenomenon of books going digital has given users the ability to access their books on handheld digital book readers. One benefit of electronic book readers is that they allow users to access additional content via hypertext links. These electronic book readers also give users portability for their books since a reader can hold multiple books depending on the size of its hard drive.[6] Companies that are able to adapt and make changes to capitalize on the digital media market have seen sales surge. Vice President of Perseus Books Group stated that since shifting to electronic books (e-books), it saw sales rise by 68%. Independent Publishers Group experienced a sales boost of 23% in the first quarter of 2012 alone.[7]

Tor Books, a major publisher of science fiction and fantasy books, started to sell e-books DRM-free by July 2012.[8] One year later the publisher stated that they will keep this model as removing DRM was not hurting their digital distribution ebook business.[9] Smaller e-book publishers such as O'Reilly Media, Carina Press[10] and Baen Books had already forgone DRM previously.

Video games

Online distribution is changing the structure of the video game industry.[citation needed] Gabe Newell, creator of the digital distribution service Steam, formulated the advantages over physical retail distribution as such:

The worst days [for game development] were the cartridge days for the NES. It was a huge risk – you had all this money tied up in silicon in a warehouse somewhere, and so you’d be conservative in the decisions you felt you could make, very conservative in the IPs you signed, your art direction would not change, and so on. Now it’s the opposite extreme: we can put something up on Steam, deliver it to people all around the world, make changes. We can take more interesting risks.[...] Retail doesn’t know how to deal with those games. On Steam [a digital distributor] there’s no shelf-space restriction.

Since the 2000s, there has been an increasing number of smaller and niche titles available and commercially successful, like e.g. remakes of classic games.[12][13] The new possibility of the digital distribution stimulated also the creation of game titles of very small video game producers like Independent game developer[14][15] and Modders (e.g. Garry's Mod[16]), which were before not commercially feasible.

The years after 2004 saw the rise of many digital distribution services on the PC, such as Amazon Digital Services, Desura, GameStop, Games for Windows – Live, Impulse, Steam, Origin, Direct2Drive, GOG.com, and GamersGate. The offered properties differ significantly: while most of these digital distributors don't allow reselling of bought games, Green Man Gaming allows this. Another example is gog.com which has a strict non-DRM policy[17] while most other services allow various (strict or less strict) forms of DRM.

Next important thing is that the digital distribution is more eco-friendly than physical. Optical disc is made of polycarbonate plastic and aluminum. The creation of 30 CDs requires the use of 300 cubic feet of natural gas, 2 cups of oil and 24 gallons of water. The boxes for CDs are made from polyvinyl chloride (PVC), which increases the risk of cancer.[18]

Challenges

A general issue is the large number of incompatible data formats in which content is delivered, possibly restricting the devices that may be used, or making data conversion necessary. Streaming services can have several drawbacks: requiring a constant Internet connection to use content; the restriction of some content to never be stored locally; the restriction of content from being transferred to physical media; and the enabling of greater censorship at the discretion of owners of content, infrastructure[19], and consumer devices.

See also

References

  1. ^ a b "Digital Distribution Law & Legal Definition". Legal Definitions. USLegal. Retrieved 25 April 2012.
  2. ^ Kern, Philippe. "The Impact of Digital Distribution – A Contribution" (PDF). Think Tank. Retrieved 26 April 2012.
  3. ^ Goldman, David (February 3, 2010). "Music's lost decade: Sales cut in half". CNN.
  4. ^ Canadian Press (2007-05-29). "Sam the Record Man to shut its Yonge St. doors". Entertainment section. The Toronto Star. Retrieved 2009-01-18.
  5. ^ a b c d Janssens, Jelle; Stijn Vandaele; Tom Vander Beken (2009). "The Music Industry on (the) Line? Surviving Music Piracy in a Digital Era". European Journal of Crime. 77 (96): 77–96. doi:10.1163/157181709X429105. hdl:1854/LU-608677.
  6. ^ MacInnes, Ian (2005). "Impediments to Digital Distribution for Software and Books". International Journal on Media Management. 7 (1–2): 75–85. doi:10.1080/14241277.2005.9669418.[permanent dead link]
  7. ^ Rosen, Judith (2012-04-16). "Distribution in a Digital Age". Publishers Weekly.
  8. ^ "Tor/Forge E-book Titles to Go DRM-Free". Tor.com. 2012-04-24. Retrieved 24 April 2012.
  9. ^ Geuss, Megan (2013-05-04). "Tor Books says cutting DRM out of its e-books hasn't hurt the business - A look at the sci-fi publisher a year after it announced it would do away with DRM". Arstechnica. Retrieved 2013-07-07. Early this week, Tor Books, a subsidiary of Tom Doherty Associates and the world's leading publisher of science fiction, gave an update on how its decision to do away with Digital Rights Management (DRM) schemes has impacted the company. Long story short: it hasn't, really.
  10. ^ "Tor/Forge Plans DRM-Free e-Books By July". Publishers Weekly. 24 April 2012. Retrieved 24 April 2012.
  11. ^ Walker, John (2007-11-22). "RPS Exclusive: Gabe Newell Interview". Rock, Paper, Shotgun. Retrieved 2013-06-28. The worst days [for game development] were the cartridge days for the NES. It was a huge risk – you had all this money tied up in silicon in a warehouse somewhere, and so you’d be conservative in the decisions you felt you could make, very conservative in the IPs you signed, your art direction would not change, and so on. Now it’s the opposite extreme: we can put something up on Steam, deliver it to people all around the world, make changes. We can take more interesting risks. [...] Retail doesn’t know how to deal with those games. On Steam [a digital distributor] there’s no shelf-space restriction. It’s great because they’re a bunch of old, orphaned games.
  12. ^ "The Secret of Monkey Island: Special Edition Tech Info". GameSpot. Retrieved November 15, 2011.
  13. ^ Onyett, Charles (June 2, 2009). "E3 2009: The Secret of Monkey Island: Special Edition Preview". IGN. Archived from the original on May 27, 2012. Retrieved November 15, 2011.
  14. ^ Garr, Brian (17 April 2011). "Download distribution opening new doors for independent game developers". Statesman.com. Archived from the original on 21 April 2011.
  15. ^ Stuart, Keith (27 January 2010). "Back to the bedroom: how indie gaming is reviving the Britsoft spirit". The Guardian. Retrieved 8 November 2012.
  16. ^ Senior, Tom (2012-03-16). "Garry's Mod has sold 1.4 million copies, Garry releases sales history to prove it". PCGamer. Retrieved 2013-06-28.
  17. ^ Caron, Frank (2008-09-09). "First look: GOG revives classic PC games for download age". Ars Technica. Retrieved 2012-12-27. [...] [Good Old Games] focuses on bringing old, time-tested games into the downloadable era with low prices and no DRM.
  18. ^ "Why digital is greener than the boxed video games?". CodesWholesale.com. 2016-04-22. Retrieved 2016-08-04.
  19. ^ Kharif, Olga (September 4, 2018). "YouTube, Netflix Videos Found to Be Slowed by Wireless Carriers". bloomberg.com. Retrieved February 26, 2018.
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