Executive Summary:

Record labels have depended on album sales to boost profits. But in the digital music era, consumers prefer single songs over music “bundles.” The result? Harvard Business School professor Anita Elberse says it is time for the industry to rethink its products and prices. Key concepts include:

• The unbundling of albums into a series of separately sold songs on digital music stores is hurting record label profits.
• Labels are less likely to get away with selling a bundle based on the strength of one or two tracks if the other songs are far less appealing.
• A strong artist reputation helps to curb the negative impact of unbundling. Labels should continue to push for higher prices online and generally more flexibility
• Labels might consider pushing for higher prices online and generally more flexibility in setting prices.
• Giving preference to quality over quantity and designing smaller, more consistent bundles may be beneficial.