To theme or not to theme: Can theme strength be the music industry's "killer app"?

Music bundling has been the mainstay of the music industry for decades. Record companies and producers have selected bundles of songs and sold them as albums, their most important revenue source. Digitization and piracy of music have threatened this standard business model with consumers increasingly purchasing music a la carte. In this study, we analyze a strategy for designing successful albums through using new concepts of themed bundling. Thematic bundling can lower consumer search costs and dampen the incentive to pirate music, and can potentially be a win-win strategy for both consumers and music companies. Unlike prior work in economics on bundling which typically seeks to determine the optimal price, bundle size and composition, we focus on a restricted bundling problem, since the price of the bundled product (i.e. an album) is generally set over a narrow range as is the number of items (i.e. songs) in the bundle. Our key results and insights are derived using analytic modeling and extended through numerical analysis. In addition, our key findings are supported by our empirical analysis of music album chart performance. (C) 2009 Elsevier B.V. All rights reserved.