The current development of information and communication technologies, such as the rapid popularization of the Internet and increasingly fast lines of communication, has dramatically changed the creative industries' business model. One of the noteworthy changes is the large increase in the distribution of a Freemium business model. Freemium is a new business model: a basic service is provided free of charge, but money is charged for virtual goods or other value-added functions. However, many economists and company managers are concerned about the substitution effect: consumers whose consumption is satisfied through free goods stop purchasing paid goods, causing revenues from paid goods to decrease. In this paper, I discuss the impact of free digital distribution on the number of physical sales in the music industry from the view point of complementary effects and substitution effects.
The results showed that the complementary effect of free digital distribution is greater than the substitution effect, so free digital distribution has a significant positive impact on the number of physical sales in the music industry. It was found that the number of physical sales increases by about 0.19% when free digital distribution views increase by 1%. In addition, short term free digital distribution does not have a significant positive effect, but long term free digital distribution does. Furthermore, the number of physical sales which resulted when free digital distribution was provided was significantly larger than when free digital distribution was not provided. From the above, it is proposed that music companies should provide long term free digital distribution.
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