Bundling and Distribution of Digitized Music Over the Internet

Abstract

The Internet is radically changing the way music is created and distributed. The initial activities seem to be concentrated in the area of distribution as a traditionally "tangible" product gets digitized and is therefore capable of electronic distribution. Fundamental rethinking needs to be considered, as we have to contemplate drastic changes in the traditional model that has connected the artist to the music enthusiast. In this article, we summarize the spectrum of these changes and start a formal analysis of the underlying issues. Specifically, we consider the effect of unbundling of music items that traditionally came bundled as part of an entire album and present a model for the same. The model considers a bundle of 2 individual music items that might either be sold individually or as a bundle. We look at the problem in 2 ways: (a) the effects of varying the proportion of the consumers liking the individual items and the bundle, and (b) the effect of varying the pricing of the items and the bundle. Analysis of the model for a few specific cases confirms the validity of some hypotheses that were derived from earlier research. More important, the analysis provides some real-life pointers for the recording company chief executive officer for creating and pricing effective digitized music bundles. This analysis could be readily generalized to all "information goods," products that can be reproduced digitally and distributed over the Internet.