"Selling less of more?" The impact of digitization on record companies

In this paper, we use data from a survey of 151 French record companies to test the "long-tail" hypothesis at the level of the firm. More specifically, we test whether, following the "selling less of more" principle coined by Anderson (2006), record companies that have adapted to digitization (at various levels: artists' scouting, distribution, and promotion) release more new albums without having higher overall sales. We construct a production function in which the output is produced from conventional inputs of labor and capital, as well as inputs that are more specific to the recorded music industry. We consider two types of output: a commercial output (albums sales) and a creative output (number of new albums released). We show that labels that have adapted to digitization are more efficient in respect of creative output, but that there is no effect of adaptation to digitization on the commercial output, which is consistent with the predictions of the long-tail hypothesis.