The Daily Swarm

Harvard Business School professor Anita Elberse, who does much of her business research on the entertainment industry, looked at the clash between bundles and digital distribution, and the effect on media and entertainment firms. We asked Elberse about her recent working paper, “Bye Bye Bundles: The Unbundling of Music in Digital Channels.”

Q: So what should record labels do to fix things?

A: The labels could simply refuse to offer their goods in an unbundled form online by avoiding retailers like iTunes that, with few exceptions, require that songs be made available separately. The band AC/DC has followed that strategy for years, and some insiders attribute its high album sales to that choice. However, it is difficult to see how this strategy would affect less-established artists, and I think the long-run effects are difficult to predict.

A better approach might be to continue to push for higher prices online and generally more flexibility in setting prices. The key for labels is to capture a high-enough markup on individual songs to make up for any lost revenues on albums. Another strategy worth considering is to sequentially release albums and songs so as to stimulate more loyal and eager consumers to buy the full bundle. Offering extras to consumers buying the full bundle may help, too.

More broadly, I think labels should rethink the essence of a bundle. An album with around 12 songs may be a fine format for some artists, but why would it necessarily fit the majority of musicians? Digital channels give labels great flexibility to try alternative formats. My results show that giving preference to quality over quantity and designing smaller, more consistent bundles may be beneficial.

In general terms, the same probably applies to other industries where digital channels could lead to an unbundling of products, such as book or newspaper publishing and television production. It should be about providing real value to consumers, not about tricking them into buying something they do not want.