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Why DRM Cannot Open Up New Business Models
An anonymous reader writes "Techdirt has a cool post up that doesn't just explain why DRM is bad, but gives a really interesting economic explanation for why DRM cannot create successful new business models. Since the RIAA and MPAA keep insisting that DRM will create new business models, it's useful to see an argument for why that's basically impossible." As the article says, anyone can create a "new" business model. Creating a successful "new" business model is what is so elusive here.
The legitimate download industry has a problem. Their products can't compete with the freely available infringing versions of the same content.
Their products cost more and they are less useful. The only selling point they have is that the copy they give you is legitimate.
However, rightly or wrongly the vast majority of people are willing to ignore this if the unlawful version is materially better than the legal version.
The music industry has to react logically to the situation rather than emotionally. Until they do that, decline is all they can look forward to.
Simon
I believe the argument is that iTunes has succeeded in spite of DRM, not because of DRM.
Even if the government, for some reason, threw everything they had at helping the RIAA...it'd only delay the inevitable. People want music, musicians want to provide it. Right now most people are still happy getting their music from the labels, and enough of the artists are willing to work the the labels to fill that demand. But that is slowly changing, and the process will accelerate as it proves itself to be a valid way of doing business.
The only way the RIAA and/or government could begin to control it is through stricter DRM and stricter laws. And that will just drive people away faster. The government spends billions per year trying to stop the movement of drugs in this country, and they can hardly dent it. What chance do they have against a product that is trivial to mass produce copies of, and which can be transmitted across the globe practically instantly.
One time I threw a brick at a duck.
You can't show that, it's not even an argument. You can't support that line of thinking because there is no version of iTunes without DRM to compare to. Saying iTunes succeeded "in spite of" DRM is more wishful thinking than any kind of argument, it's sort of like climate change denial: "we can't affect the polar ice caps, that's silly! oh, we are? well it would have happened anyway".
The problem with DRM is it switches off peoples brains. The linked article is a great example. The guy writing it apparently doesn't understand economics at all, and compensates by throwing around buzzwords and reducing everything to absurdity. He goes on to make a series of obvious statements like "For a new business model to make sense, it needs to provide more value" and another series of meaningless ones like "value is not a scarce concept" (you can't have a non-scarce concept).
Finally, his argument (I use the term loosely) is invalidated by counter-example - DRM clearly does let you create 'new' business models because it lets you rent things that otherwise you'd have to buy. For instance you can get all-you-can-eat access to a large music library for as long as you pay a subscription. Whether these business models will succeed or not, I cannot say. I know people who subscribe to them and are happy with them. Nonetheless it's impossible to argue that this is not a business model enabled by DRM - if your access did not expire then it'd be equivalent to giving away huge amounts of content for free.
His other article is a waste of time too. He says:
Economics is a study of scarcity, that's pretty much its definition. He implies a market can function without scarcity but doesn't elaborate on how that would work, instead simply claiming the unbelievers are "uncomfortable" due to a "fundamental misunderstanding". But we already know what happens when something becomes non-scarce - it's price drops to zero, as can be seen by logging onto any big filesharing network.
Basically, he claims there's an economic solution to non-scarcity of information that doesn't involve DRM. I've been looking for such a theory for some time, and never found one. Extraordinary claims require extraordinary proof and he presents none.
I hate the $0.99/DRM-protected song as much as anybody, but I do see another scenario that requires DRM: subscription music services. At $15/month I need to listen to at least 15 new songs each month to break even. As a way of finding new music it works pretty well. You find some music you enjoy and then look at the list of recommended bands and try out their music. It's not much more than satellite radio, but you get to choose what's playing.
But, you could never have a service like this without DRM. Imagine a movie rental store that burned movies on DVD-Rs instead of handing you the original disk. Then they tell you that instead of returning your movie in a week you must throw it in the trash. I'd imagine just about everyone would keep their collection of DVD-Rs. Furthermore, many people would stop paying full price for a movie and get it for the rental price (or even the have 3 discs at a time plan, as long as you throw one away before picking up another).
Say my music budget is $15/month. If I buy DRM-free songs at roughly $1/song, it'll take me over 41 years to fill a 30GB music player (roughly 7500 songs). If I download DRM-protected songs using my music subscription I can fill that player every month (or more frequently) and constantly change the music that is on there. As long as music filesharing is easy to do, hardly anybody who owns an iPod is going to spend the thousands of dollars on music to fill it up. DRM makes it a dumber thing to do (since you'd lock yourself in for thousands of dollars), but DRM-free isn't going to make music sales take off much faster.
But, you could never have a service like this without DRM. Imagine a movie rental store that burned movies on DVD-Rs instead of handing you the original disk.
Note that your "movie rental store" is actually private lending library. If they hand you the original disk they need to know who you are so that they can be sure of getting it back. If they gave you a copy then they have no reason to care. All they need to do for a viable business model is to ensure that they charge you enough money to at least cover their costs, which could include a royalty payment as well such things as the cost of the disk, the service of burning it, some amount towards the overhead of running the shop, etc.
Furthermore, many people would stop paying full price for a movie
This is more an indication of a problem with the business model behind "full price" DVDs that any kind of endorsement for DRM.