Bye-Bye Bundles: The Unbundling of Music in Digital Channels

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? The author empirically examines 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 more than 200 artists. The modeling framework, a system of an album-sales and a song-sales equation estimated with the seemingly unrelated regression method, explicitly accounts for the interaction between sales for the bundle and its components. The findings reveal that revenues decrease significantly as digital downloading becomes more prevalent, but the number of items included in a bundle (a measure of its objective value) is not a significant moderator of this effect. Instead, 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 channels.