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? I empirically examine 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 over 200 artists. My modeling framework, a system of an “album-sales” and a “song-sales” equation estimated using the seemingly-unrelated-regression method, explicitly accounts for the interaction between sales for the bundle and its components. I find that revenues decrease significantly as digital downloading becomes more prevalent, but that the number of items included in a bundle (a measure of its “objective” value) is not a significant moderator of this effect. Instead, I find that 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.