1. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Why Do Consumers Pay Voluntarily? Evidence from Online Music Tobias Regner and Javier A. Barria tobias.regner@uni-jena.de j.barria@imperial.ac.uk This work was partially supported by the EU-funded projects TIRAMISU (IST-2003-506983) and DANAE (IST-2004-507113). We are grateful to Maija Halonen-Akatwijuka and Osiris Parcero for valuable comments. Finally, John Buckman has been essential for this paper as he provided the Magnatune data.

2. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Why Do Consumers Pay Voluntarily? Evidence from Online Music Analysis of payment behaviour –Alternative online music label: Magnatune –Customers choose price for an album from a given range –How much do they pay, what makes them pay more? Do consumers pay voluntarily? –Large data set obtained from Magnatune –Field study instead of data from lab experiments –Quantitative analysis Why do consumers pay voluntarily? –Online survey of frequent Magnatune customers –Qualitative/quantitative analysis –What is the underlying motivation for paying more than necessary?

3. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Niche music label with 200 artists –Slogan: We're a record label. But we're not evil. –Revenues are evenly split between artist and Magnatune Various genres, relatively unknown artists no Digital Rights Management –Music files are unprotected –File quality and format is up to customer (MP3, WAV,..) Comprehensive pre-purchase access –Free and unlimited streaming as well as online radio service Not just 30 second snippets –Free sampling of experience goods facilitates discovery of music Variable pricing –Customers are free to pay what they want –Price range from $5 to $18 –Recommended price/default value: $8 Magnatune: Music Label and Online Store

4. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Data Set Sales numbers of the music label Magnatune www.magnatune.com 14,367 observations in total Data from September 2003 to January 2005 7,620 different customers Majority (4,986) purchased just one album Most albums bought by a customer: 49 On average customers bought 1.86 albums No reputation effects possible

5. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Customer/artist ID Payment Date and time of purchase Dummies –Gender –Download or CD –Email left or not –Means of payment (credit card, PayPal) –Country –Music genre Total amount of purchases of customer Number of a respective purchase of a customer Data Set (2)

6. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Descriptive Stats

7. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Payment over Countries

8. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Summary of Results Payment –Only 2,081 purchases (or 14.5%) were at the minimum of $5 –Average payment for an album is $8.20 –First payment of customers averages $8.36, 2 nd payment averages $8.21 Regression results (significant at (at least) 5%-level) –Anonymous customers tend to pay less –CD buyers tend to pay more –No difference between male and female customers –No country effects after accounting for GDP differences Types of consumers –Clustering of the observed transactions based on previous payment minimum, default, high (>$12) payment –$5 previous payment, average payment : $5.49 –$8 previous payment, average payment: $8.01 – > $12 previous payment, average payment: $12.29 –Payments type-dependent, subject-specific α

9. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Payment Patterns of 32 Customers with 15+ Transactions Default (with deviations): 20 consumers (quasi-) minimum: 4 >AVG: 5 Other patterns (decreasing payment): 3

10. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Magnatune customers with at least 10 transactions Anonymous participation 236 responses out of 520 invitations sent out Seven open-ended questions –Benefits of purchasing music at Magnatune –Own payment (less, around above recommended price) and reasons for it –Estimate of customers’ average payments at Magnatune and reasons Eleven multiple choice background questions –Gender –Age –Country –Personal income –Educational background –Actively making music –Donations to charity –Own consideration of others’ decisions/opinions –"It is important to me what others think of me." –Reciprocity (positive/negative) Online Survey

11. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Clustering of textual responses into categories –Magnatune specific - technical45.26% –Support of the artist44.83% –Magnatune specific - idea/business41.81% –Magnatune specific - music30.17% –No DRM 29.74% –“Try before buy"21.98% –Online music general9.05% –Guilt2.16% Probit regressions –Dependant variable: Own payment less/around/above recommended price –Explanatory variables Category entries Survey scores (reciprocity, “own consideration”, “importance of others opinion”,..) Gender, country, income, age, education, “actively making music”, “donations” Qualitative/quantitative analysis

12. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Own payment is less/around/above recommended price … –Less13.6% (32) –Around59,7% (141) –Above26.7% (63) Regression results (***=1%, **=5%, *=10%) –Own payment is above recommended price explained by Score of positive reciprocity ** “Try before buy“** Middle income regions*** R²=0.26 –Own payment is around recommended price explained by Own consideration of others’ decisions/opinions* R²=0.14 –Own payment is below recommended price explained by Low income regions*** Magnatune specific – technical** R²=0.32 Key Preliminary Results

13. Why Do Consumers Pay Voluntarily? Evidence from Online Music - T. Regner and J. Barria Consumers pay voluntarily at Magnatune –Average payment $8.20 –Only 14.5% of purchases were at the minimum of $5 –Payments appear to be type-dependant Why do they pay voluntarily? –Preliminary evidence that positive reciprocity drives behaviour Kind behaviour by Magnatune (free streaming etc.) Score of positive reciprocity significant at 5%-level “Try before buy“ category significant at 5%-level –Own consideration of others’ decisions/opinions Score affects “around”-payments at 10%-level –Income –No significant effects for gender, education, “actively making music”, “donations”, “guilt”, “fairness” Conclusions