Bundle This: The Latest Math from Harvard Business School

Is a better bundle the key to revitalizing recording revenues?

That is one question recently addressed by Harvard Business School, part of a larger look at the negative revenue effects presented by (mostly paid) digital formats.

The report – authored by Associate Professor Anita Elberse – attributes roughly one-third of the decrease in album sales to cherry-picking.  More specifically, for every one-percent increase in the paid downloading rate, album sales suffer a 6 percent decrease in sales.  At the same time, single-track sales increase by 9 percent.

Parts of the analysis are obvious, at least to those inside the industry.  At the onset, digital formats offered the promise of near-zero distribution overhead, though the shift away from CDs (and albums in general) eroded a critical bundle.  But Elberse has put some numbers on the phenomenon, and highlighted a big problem behind the a-la-carte phenomenon.

Perhaps more importantly, Elberse starts digging more into what a better bundle would look like.  More tracks, for example, are not necessarily important for fans, and the price differential between the one-off single and the corresponding collection of songs is also worth considering.  Greater album quality, and stronger artist reputations are better for bundled sales, though the more comprehensive answer to this question probably involves years of further experimentation.

It will also involve a continued appreciation for the role that free, unauthorized channels play.  Elberse noted that free channels were considered, though at many points, there are misplaced assumptions about the level of control that labels and the iTunes Store have had over consumer choice.  Elberse recommends that labels “simply refuse to offer their goods in an unbundled form online by avoiding retailers like iTunes,” and to “continue to push for higher prices online,” both strategies that ignore the extreme level of flexibility and power that consumers enjoy.

Report by publisher Paul Resnikoff.