| Abstract: |
Since the launch of the iTunes Music Store in the US in 2003 and in much of
Europe in the following years, music trade has shifted rapidly from physical
to digital products, raising the availability of products in dierent
countries. Despite substantial growth in availability, the available choice
sets of digital music have not fully converged across countries. The
territorial fragmentation of the EU copyright management regime and related
cross-border transaction costs are often perceived as an obstacle to greater
availability. However, other factors such as commercial strategies by music
producers may also aect availability. EU policy makers are now contemplating
various possibilities to reduce these cross-border trade costs and improve
convergence in music availability across countries. This raises the question
of how much benet these policy measures would create for consumers and
producers in Europe and around the world. This study calculates the economic
benets for consumers and producers from further trade opening or trade cost
reductions in digital music. We address this question using comprehensive
Nielsen data on digital track sales in the US, Canada, 13 EU Member States,
and 2 other European countries (Norway and Switzerland) from 2006 to 2011. We
estimate a structural model of music demand which allows us to obtain the
consumer surplus for consumers in each destination country as well as the
revenue for producers in each origin country. Our model allows us to simulate
several scenarios. We rst compare the baseline current situation (the \status
quo") with full autarky whereby only local music is available in each country
- a big step backwards compared to the status quo. We then compare the status
quo with a fully open EU Digital Single Market whereby all European music is
available in all EU countries. Finally, we simulate worldwide openness in
which all music is available in all countries. We estimate both consumer
surplus benets and producer revenue eects for these scenarios. Not
surprisingly, the current status quo music trade benets consumers everywhere
compared to the autarky scenario. Relative to autarky, status quo trade raises
aggregate consumer surplus in the 17 countries by about e300 million (a 11.3%
increase). Trade also raises producer revenue by e85 million (a 2.8%
increase). European consumers benet more from music trade than North
Americans. However, it has large benets for American producers but on balance
small benets to European producers. American producers have a larger market
share in Europe that European producers have in the US. Moving from the
current status quo to an EU Digital Single Market for music would increase
consumer surplus from digital music consumption by 1.8 per cent (e19 million)
and music producers'revenue by 1.1 per cent (e10 million). Benets vary
considerably across Member States. Under worldwide frictionless trade
consumers in 15 European countries gain e31 million (a 3% increase) while
North American consumers gain e6.5 million (a 0.35% increase). Most of the
gains from fully frictionless trade - about two thirds - are accomplished by a
European single market. Annual gains from worldwide frictionless trade for
producers, compared to autarky, reach 1.9% in Europe and 0.38% in the US.
Clearly, the additional gains from moving beyond a European Digital Single
Market to a worldwide open market would be small for European producers and
consumers. Digital music production and consumption is only a small part of
all media markets covered by copyright. We note that the gures presented here
represent only a fraction of the potential benets from further trade opening
in other digital media. |