Digitalization of music and Long Tail effect in Finnish music industry

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http://urn.fi/URN:NBN:fi:hulib-201802051189
Title: Digitalization of music and Long Tail effect in Finnish music industry
Author: Peltola, Juuso
Other contributor: Helsingin yliopisto, Valtiotieteellinen tiedekunta, Politiikan ja talouden tutkimuksen laitos
University of Helsinki, Faculty of Social Sciences, Department of Political and Economic Studies
Helsingfors universitet, Statsvetenskapliga fakulteten, Institutionen för politik och ekonomi
Publisher: Helsingin yliopisto
Date: 2017
Language: eng
URI: http://urn.fi/URN:NBN:fi:hulib-201802051189
http://hdl.handle.net/10138/232013
Thesis level: master's thesis
Discipline: Taloustiede
Economics
Ekonomi
Abstract: In this thesis the existence of Long Tail effect in Finnish music industry is studied. The Long Tail effect is defined as the expansion of music supply to include a higher number of niche products instead of focusing on fewer ‘superstar’ hits. Emergency of ‘superstar’ hits has been the trend in entertainment industry since the invention of mass media and music recording, but new technological innovations can start to challenge it. The source of the Long Tail effect is in newer technological innovations, such as online distribution services and digital production tools, which lower the cost of producing music and distributing it to customers. Previously the costs of production and distribution limited the amount of producers that entered the market, but with new technologies the barrier of entry is lower than ever. This allows higher number of producers to produce music and bring it to the market, thus expanding the variety of supply. The new products won’t take hits’ place on the top of the charts, but they can take bigger share of the market than before. The goal of this thesis is to study whether the Long Tail effect exists in Finnish music market or not. To do this the record companies are assumed to produce commercial and creative output, and production functions for both are defined. Then two hypotheses are formed regarding these outputs and digitalization. First hypothesis states that if the Long Tail effect exists, the creative output is higher for firms that have adapted to digitalization. Second hypothesis is that if the Long Tail effect exist, the commercial output is not affected by the adaption to digitalization. To test the hypotheses, empirical data for 52 record companies is collected and used. Business register data is used to measure companies commercial output, labor input and capital inputs. National Library legal deposit database is used to measure creative output and intangible capital input. A measurement for digitalization is created by observing the availability of companies’ releases in YouTube and Spotify. Commercial output is estimated from the empirical data with OLS regression model and creative output is estimated with Negative Binomial regression model. The significance of digitalization is tested for both outputs. The results for these estimations show that in case of commercial output, none of digitalization variables used in the estimation affects the output. This is in line with the hypothesis regarding commercial output, which supports the existence of Long Tail effect. In case of creative output, all digitalization variables have significant and positive effect on the output. This is in line with the hypothesis regarding creative output, which supports the existence of Long Tail effect. Similar estimations are also done for second dataset, where three largest companies are excluded as potential outliers. The results for this dataset are the same. Digitalization doesn’t affect commercial output, but it increases the creative output. Conclusions from the results of this thesis are that they support the existence of Long Tail effect in Finnish music market. The two hypotheses that support the Long Tail effect were that digitalization doesn’t affect the commercial output and digitalization increases the creative output, and the results show that both hypotheses are true. For robustness the estimation was done for a second dataset where three largest companies were excluded as potential outliers, and results from this estimation also support the existence of Long Tail effect.
Subject: Long Tail
music industry
music market
digitalization


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