"I heard it through the grapevine...".

Word of mouth (WOM) has always been one of the most credible and influential sources of information for a consumer. With the advent of the Internet, new mediums of communication, such as blogs and social networking sites, have opened up, allowing more consumers to gather WOM information more easily than ever before. In this study, I examine the usefulness of online WOM, particularly from blogs and social networking sites, in predicting sales in the music industry. I track the changes in online WOM for a sample of 108 albums for four weeks before and after their release dates, and use a linear regression and regression tree to examine the relative significance of online WOM variables on their observation date in predicting album unit sales two weeks after that date. I find that the volume of blog posts about an album is the most consistently significant measure, with each additional blog post corresponding to higher album sales. In addition, I found that greater increases in an artist’s Myspace friends week over week and higher average consumer ratings also corresponded to higher sales. Although evidence supports my hypothesis that online word of mouth can be an important predictor of sales, my study also found that traditional factors are still relevant – albums released by major labels and albums with a number of reviews from mainstream sources like Rolling Stone also tended to have higher sales.