Fueled by digital distribution, unbundling is prevalent in many information and entertainment industries. What is the effect of this unbundling on sales, and what bundle characteristics drive this effect?
I empirically examine these questions in the context of the music industry, using data on weekly digital – track, digital – album, and physical – album sales from January 2005 to April 2007 for all titles released by a sample of over 200 artists.
My modeling framework, a system of an “album – sales” and a “song – sales” equation estimated using the seemingly – unrelated – regression method, explicitly acco unts for the interaction between sales for the bundle and its components.
I find that revenues decrease significantly as digital downloading becomes more prevalent, but that the number of items included in a bundle (a measure of its “objective” value) is n ot a significant moderator of this effect. Instead, I find that bundles with items that are more equal in their appeal and bundles offered by producers with a strong reputation suffer less from the negative impact of the shift to mixed bundling in online c hannels.