Survey Shows Digitizing Record Labels Adapt to the “Long Tail”

In 2004, Chris Anderson published "The Long Tail," in which he described the future of entertainment as selling more products to millions of previously untapped niche markets, a process enabled by digitalization. In "Selling less of more?: The impact of digitization on record companies," Marc Borreau, Michel Gensollen, and Patrick Waelbroeck of Telecom ParisTech and François Moreau of the Université de Bretagne Occidentale test the "long-tail hypothesis" at the level of the individual music firm for the first time. Their survey of record companies finds that those who are utilizing digital technologies do not necessarily sell more units, but they do release more albums, consistent with the long-tail hypothesis, but with some surprises and caveats.

One hundred fifty-one French record companies completed the survey between July and October 2006. The survey included one major record label, a few large, independent labels, and several very small labels. The authors examine three factors to determine if a record label has 'digitized': whether current contracts feature clauses on digital music distribution; whether labels utilize digital scouting to discover new talent; and whether they authorized their artists to offer free online music streaming or downloads. These variables, as one might expect, influence each other. In the paper, the authors determine that if a label satisfies two of the three factors, then they have 'adapted to digitization.'

Labels that have adapted to digitization do not have higher sales numbers than labels that have not embraced digital technology. However, adapting to digitization does result in releasing more new albums. These findings suggest that record companies who have adapted to digitization are selling fewer units of more albums, as Anderson predicted.

The story is more complicated when differentiating by large or small record labels, and whether they are for-profit or non-profit. The authors find that digitization improves creative output (as measured by album releases) only for large, for-profit labels. The authors speculate that small labels have become more selective in picking their artists due to the efficiency of internet-enabled talent scouting.

The survey counted only physical CD sales, since in 2005-2006 digital sales were negligible to company profits. That is no longer the case, with almost 14 percent of all music sales in France coming from digital vendors. Also, it is not clear how indicative French record labels are of global trends. Finally, future research needs to ask if digitization affects the quality of the creative output, which this survey did not attempt to capture.

Borreau, Marc, Michel Gensollen, Francois Moreau, and Patrick Waelbroeck. 2013. "'Selling less of more?' The impact of digitization on record companies."Journal of Cultural Economics. 37(3): 327-346. doi: 10.1007/s10824-012-9184-4