Retrospective: digitization and Global Music Trade Patterns since 2006

Another working paper by the Joint Research Centre of the European Commission. It results from the Digital Economy Research Programme at the JRC Institute for Prospective Technological Studies, which carries out economic research on information society and EU Digital Agenda policy issues, with a focus on growth, jobs and innovation in the Single Market.

The growth of the Internet as an unregulated zone for music promotion may undermine policies promoting local music. Digital retailing threatens to exacerbate this loss of control: not only can consumers avoid locally regulated promotional outlets; they also can have access to a growing number of tracks from abroad.

One might expect the shift from physical to digital music sales to create a global music market as transport costs are reduced to zero on the internet. Yet whether digitization promotes a global marketplace depends on two separate issues: what’s available to consumers in different countries; and given what’s available, what they choose to purchase.

While one cannot download digital music in online stores outside one’s country of residence, one can, however, buy physical CDs online in another country. Hence, the impact of digitization on international music trade patterns remains an open question. Some factors may have facilitated greater trade; others make it more difficult. The objective of this study is to find out what is happening to consumers’ options, their choices, and the ensuing patterns of trade in this market for digital music.

Digital distribution has the promise of reducing trade costs rather substantially. Not only is it unnecessary to ship physical goods, it is also unnecessary to ship unsold goods back, nor to maintain costly physical inventories. Digitization of distribution may thus allow massive expansion of consumers’ choice sets, for both domestic and foreign music.

Researchers’ findings are as follows. First, cross country patterns of digital music trade resemble cross country patterns of trade generally: distance between origin and destination countries matters, language of the two countries matters, and there is substantial home bias (preference for domestic repertoire), which varies strongly across countries. Second, with the shift to digital retailing cross-border trade makes up a growing share of consumption and, by extension, domestic consumption occupies a shrinking share.

The US is an exception: the home share is by far the highest of all countries and remains roughly constant in the digital era. As a result, US repertoire makes up a growing share of the volume of world music consumption in the digital era. However, this does not seem to be an Anglo-Saxon or English language issue: UK home shares also decline.

Patterns of availability seem not to explain this shift: while availability of songs for all country repertoires grows in all destinations, the number of US-origin songs actually makes up a declining share of what’s available over this period.