LANGUAGE, COPYRIGHT AND GEOGRAPHIC SEGMENTATION IN THE EU DIGITAL SINGLE MARKET: THE CASE OF APPLE ITUNES

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1 LANGUAGE, COPYRIGHT AND GEOGRAPHIC SEGMENTATION IN THE EU DIGITAL SINGLE MARKET: THE CASE OF APPLE ITUNES Estrella Gomez-Herrera and Bertin Martens Institute for Prospective Technological Studies (JRC/IPTS) Seville (Spain) 1

2 MOTIVATION Provide empirical evidence on the extent of market segmentation in EU Determine supply and demand drivers of segmentation In EU: 28 copyright territories & management regimes Crossborder trade costs and geographical market segmentation Art 20 EU Services Directive prohibits geographical segmentation, unless there are objective reasons: copyright? Two research questions: To what extent do borders still constitute an obstacle to digital music & film? What is the role of copyright and other factors in these obstacles? 2

3 THE DATA: ITUNES MUSIC & FILM DOWNLOADS itunes market leader. Around 60% market share Top-300 for songs, albums and films in all EU27 on a given day. Extension for films based on director's name Collect availability data of each item in all EU27, price and publisher data Add meta-tags: country of origin and language of artist Product differentiation: identification of different versions of the same product (radio version, deluxe album edition, language versions of films ) 3

4 Table 1A: Availability distribution for songs, albums and films #countries available SONGS ALBUMS FILMS Identical versions Different versions Identical versions Different versions First sample Second sample Freq. % Freq. % Freq. % Freq. % Freq. % Freq. % % % % % % % % % % % % 1, % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Total % % % % % % Availability 73.1% 79.3% 75.7% 78.0% 41.5% 38.4% 4

5 Distribution of music availability 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% SONGS ALBUMS 5

6 Table 2.1: Supply of songs (number of songs from CoO available in CoD) CoD CoO > AT BE DE DK ES FI FR GB GR IE IT LU NL PL PT RO SE US ROW AT BE DE DK ES FI FR GB GR IE IT LU NL PL PT RO SE

7 GROUPS OF COUNTRIES Austria Germany- Luxembourg France Belgium Netherlands Denmark Sweden Finland Latvia Lithuania Poland Estonia Czech Republic Romania Hungary Slovakia Greece Cyprus 7

8 METHODOLOGY: THE GRAVITY MODEL Supply side availability: OLS (country level) and Probit (product level) lavail 0 1ldist 2comlang 3 home 4 eng i j lavail : log of share of songs from country i available in country j ldist : log of the geographical distance between countries i and j Comlang : dummy variable =1 if countries i and j share a common language Home : dummy variable =1 if country and origin are the same Eng : dummy variable =1 if the language of the country of origin is English Ƞ i, Ƞ j : country fixed effects dummies 8

9 METHODOLOGY: THE GRAVITY MODEL Demand: OLS at country and product level avg _ lrank 0 1ldist 2comlang 3 home 4 eng i j avg_lrank : Average log of the inverse rank of songs or albums in country j Sales: OLS and Probit lprice 0 1ldist 2comlang 3 home 4 lrank i j p lprice : Log of the absolute price of song from country i in country j Ƞ p : Publisher fixed effects 9

10 Table 5.1: Supply side availability regressions VARIABLES OLS at country level Probit at product level Songs Albums Films Songs Albums Films ldistance *** *** ** (0.006) (0.005) (0.089) (0.011) (0.010) (0.026) comlang *** *** *** *** (0.016) (0.013) (0.017) (0.022) home *** *** *** *** * *** (0.020) (0.017) (0.213) (0.042) (0.041) (0.071) Contig *** *** (0.117) (0.045) English *** (0.027) Constant *** * *** *** (0.045) (0.050) (0.664) (0.099) (0.092) (0.235) Observations , ,271 53,591 R-squared Standard errors in parentheses. All regressions with CoO and CoD fixed effects

11 Table 5.2: Consumer demand regressions (OLS, dependant variable = average of the log ranks) VARIABLES country level product level, product fe ---- Songs Albums Films Songs Albums Films ldistance ** *** * *** (0.020) (0.019) (0.231) (0.013) (0.012) (0.085) home *** *** *** *** *** *** (0.065) (0.065) (0.555) (0.069) (0.061) (0.201) comlang *** *** *** *** (0.050) (0.050) (0.029) (0.024) Contiguity * (0.305) (0.137) LoO= English *** (0.072) (0.169) (0.840) Constant *** *** *** *** ** (0.146) (0.145) (1.728) (0.472) (0.179) (0.980) Product fe Yes Yes Yes Observations ,625 64,716 20,546 R-squared Standard errors in parentheses. All regressions with CoO and CoD fixed effects. *** p<0.01, ** p<0.05, * p<0.1

12 Table 5.3: Supply (availability) and consumer demand for media products (country level OLS) Songs Albums Films VARIABLES Availability Cons dem Availability Cons dem Availability Cons dem ldistance ** *** *** (0.006) (0.020) (0.005) (0.019) (0.089) (0.231) comlang *** *** *** *** (0.016) (0.065) (0.013) (0.050) home *** *** *** *** *** *** (0.020) (0.050) (0.017) (0.065) (0.213) (0.555) Contig *** (0.117) (0.305) Constant *** *** *** * (0.045) (0.146) (0.050) (0.145) (0.664) (1.728) Observations R-squared *** p<0.01, ** p<0.05, * p<0.1. All regressions with CoO and CoD fe. Films: origin is considered to be the first country o

13 Commercial strategy or copyright? 13

14 Different versions # versions # songs % % % % % % % % % % % Total % # versions # albums % % % % % Total % Alternative versions: EP; Single version; Radio Edit; Original Extended Mix; Pop Version; Video Version; Remix; Dance Version 14

15 Table 6. Availability of versions. Songs Country At least 1 version is not available SONGS Nr songs with several versions available VERSIONS % Nr existent versions Nr available versions Ratio AT 170 1, % 2,796 2, % BE 163 1, % 2,965 2, % DE 194 1, % 2,766 2, % DK 177 1, % 2,926 2, % ES 146 1, % 2,803 2, % FI 171 1, % 2,934 2, % FR 179 1, % 2,736 2, % GB 196 1, % 2,483 2, % GR 159 1, % 2,824 2, % IE 188 1, % 2,654 2, % IT 161 1, % 2,765 2, % LU 168 1, % 2,942 2, % NL 166 1, % 2,922 2, % PL 158 1, % 2,759 2, % PT 158 1, % 2,912 2, % RO 167 1, % 2,807 2, % SE 198 1, % 2,896 2, %

16 Table 7. Availability of versions. Albums Country At least 1 version is not available ALBUMS # albums with several versions % # available versions VERSIONS # existent versions Ratio available/existent AT % % BE % % DE % % DK % % ES % % FI % % FR % % GB % % GR % % IE % % IT % % LU % % NL % % PL % % PT % % SE % %

17 Table 8. Digital availability of movies in theatres Country Movies not in itunes Total movies in cinemas Ratio AT 214 2, % BE 185 1, % BG 184 1, % CY % CZ 371 1, % DE 397 2, % DK 171 1, % EE 373 1, % ES 569 1, % FI 141 1, % FR 484 2, % GB 213 3, % GR % HU 372 1, % IE 168 2, % IT 483 1, % LT 184 1, % LU 55 1, % LV 154 1, % NL 355 1, % PL 616 1, % PT 579 1, % SE 257 1, % SI 412 1, % SK 386 1, %

18 CONCLUSIONS Why does market segmentation persist?: 1. Supply side (availability): Availability: around 73-79% for music and 40% for films Fragmented copyright regime and imperfect pan-eu licensing Considerable degree of product differentiation and price discrimination Commercial strategies that piggy back on CR 2. Demand side (sales): Language, including English Home bias and preference for domestic productions Groups of countries with stronger cultural links Next steps: Producer and consumer welfare effect (Aguiar & Waldfogel, 2014) Collection of data on long tail and CR 18