The technology explosion that began during the last decade continues to influence the way consumers obtain, digest and store information. The same technological shift has drastically impacted the bottom lines of digital content providers such as record labels, book publishers and production studios.
Michael Smith and Rahul Telang, two professors at Carnegie Mellon University’s H. John Heinz III College, have been conducting research they hope will provide insight to methods and tactics content providers can employ to thrive in this digital environment.
“This area of research is particularly intriguing for me because I’m very interested in how electronic markets change not only consumer behavior, but also how these new channels are influencing the behavior of the providers,” says Michael Smith, who teaches Interactive Marketing and Digital Transformation courses at Heinz College. “Our most recent study takes a close look at the impact adding digital distribution channels to existing physical channels can have on a company’s bottom line.”
In Converting Pirates without Cannibalizing Purchasers, a paper published jointly by Smith and Telang and two co-authors, the research team discovered an interesting indicator. The conventional wisdom among content providers is that new digital distribution channels, such as iTunes, will primarily cannibalize sales of existing physical media, such as DVDs. The team found the exact opposite. The availability of the iTunes channel primarily reduces piracy while having minimal short-term impact on DVD sales.
According to Smith, “consumers weren’t making the choice to consume legally vs. illegally, but rather the research is telling us the choice is primarily digital vs. analog. In a nutshell, if content providers offer a digital channel that competes with pirate channels they could significantly cut into the piracy that is occurring.”
Both Smith and Telang are well regarded for their team and independent research. Telang, who teaches Economics and Policy of Information Security and Risk Management to both masters and doctoral students, has received the prestigious National Science Foundation CAREER award for his research in economics of information security. He was also recently invited to speak at an intellectual property symposium hosted by Santa Clara University.
Smith has also received the National Science Foundation CAREER award for his research into designing efficient information exchanges. Additional acknowledgements include awards from the Networks, Electronic Commerce, and Telecommunications Institute, the Marketing Science Institute, the Carnegie Bosch Institute, and Amazon.com.
The digital rights and piracy studies conducted by Smith and Telang relate closely to curriculum included in Heinz College’sMaster of Entertainment Industry Management (MEIM) degree program. Director of the program Dan Green commends the research and acknowledges the growing need for companies in the entertainment industry to embrace new distribution models.
“The environment surrounding the industry today is less about distributing through antiquated channels and more about providing individual experiences to consumers at the moment they desire and on devices that are convenient to them,” says Green. “Students in the MEIM program are taught to use the analytic skill set instilled through their Heinz College education to think innovatively about how entertainment products can be distributed in this new information age.”
A PDF version of Converting Pirates Without Cannibalizing Purchasers can be downloaded HERE.