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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.
Or the terrorists will listen to our music for free!
Do you want your children to listen to the same music as terrorists?
I thought so...
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.
markets always favor efficiency. pre-internet, the cd makers, tape makers, lp makers, etc., they could successfully stand between the artist and the consumer and collect tolls for a valuable service they performed: distribution of media
however, the internet renders such a model inefficient in comparison. now, the artist and consumer can interact directly. the internet has replaced the distribution model the riaa's constituent companies are attempting to defend. there defenses are unsuccessful so far, and will continue to be
the consumer is served, the artist is served. the only person left out in the new internet distribution model is the old guard distribution model. i could say "adapt or die" but that doesn't even apply here. there is only one valid economic choice for the riaa's backers: die
obviously they aren't dying gracefully, but no one ever did. forgive the dinosaur its death throes i suppose. but the riaa is history. it's simply a matter of time and the inevitable march of progress
the artist becomes the distributor. seems like a better world to me. the distributor's money in the old distribution model warped true artistic expression i think. so it's progress all around: we get better artists. the unfettered democratic interaction of artist and consumer on the internet will let the cream rise to the top, instead of whomever is backed with the most cash and radio plugs, a la the old model
go ahead riaa, try to stop progress. good luck to you
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
Its success will be predicated on how much pain/reward the model brings to the customers when accepted versus the collective pain/reward of civil disobedience when it meets force.
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.
Restrictions kill business and it's a lack of those restrictions which make iPod what it is. Restrictions, other than those imposed by M$, had nothing to do with the success of iTunes. Good hardware design, compatibility with existing CD collections and a lot of bad decisions from M$ are what made iPod and iPod made iTunes. Restrictions can and will kill iTunes and iPod if Apple is not careful.
Without iPod, no one would ever have bought anything from iTunes and restrictions have hurt it. People load their iPods with CDs, not restricted tracks from the iTunes music store. iPod is responsible for the success of iTunes, but that is tiny trickle of what it could be without restrictions. People took more time and trouble to purchase the same thing on CDs. If they really could have exactly the same thing from iTunes as they get from CDs, they would have bought much more.
Both iPod and iTunes would have been a flop like WMP and "Plays for Sure" if Apple had put restrictions on music that originally had none. People got angry when they learned that WMP made it impossible for them to transfer their CD based music collections, had to rip everything again if Windoze flaked out, and when WMP itself was not stable due to all the paranoid checks and M$ using it as a conduit for advertising. All of the M$ imposed restrictions made media on M$ decidedly second rate. M$'s suppression of the ogg format probably spared both M$ and Apple of early Linux competition, but that did not make WMP any better. Apple won because they had the easiest to use and least restrictive package.
Competition will continue to threaten non free music. iTunes sales will collapse as people continue to discover legal and restrictionless music online. If Apple makes it difficult for people to buy and load restrictionless music though iTunes, iPod will die. iPod also faces a significant threat as makers of music players embrace ogg and free software. M$ let those makers down by not delivering on sales, stabbed them in the back by eliminating the whole "Plays for Sure" DRM and all of them are now under the mp3 patent litigation cloud. Music player makers who deliver a quality product that works with all file formats and does what the user wants can and will supplant iPod.
Friends don't help friends install M$ junk.
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.
Maybe that is the point here... Certain types of "information" are now so ubiquitous that they are infact worth just about zero. Maybe we should not worry so much about wether the system will encorage people to produce entertainment, or even art. Maybe we as a society are producing too much entertainment.
I hate to say this but it is after all the option nobody seems to be considering, perhaps we have reached a point where this stuff is so easily had that without a questionably legal cartel to artifically prop up prices supply is in excess of demand. If less entertainment was produced people might not choose to patronize those who produce work they like, they might thing hey given the releative SCARCITY of media products I like maybe it would be fun to have the physical materials that normally come with or join their subscription service to get their new stuff sooner, whatever. As it stands now there is so much out there for everybody that I think most consumers can't figure out what they *want* but they can get *everything* free so they do and end up buying nothing.
I think there certainly *is* a market for music, film, art, etc just not as big of one as has been created by legislative and technological(DRM) rent seeking the industry has engaged in. The amount of value this society places on these products has become HIGHLY distorted. I bet if we roll back copyright rules to what they were at the end of the nineteenth centry and call the *IAAs what they are organizations that enable illegal colusion and price fixing we get as a result in a pretty short time frame:
1. A much smaller entertainment industry dollars and cents wise
2. A much smaller entertainment industry in terms of product output
3. Much higher quality entertainment products that are produced
4. Consumers paying(voluntarily) for a much larger portion of the entertaiment products they use
5. A functioning market place where consumers reward producers for stuff they like and stuff they don't like sits unsold on shelves and ceased to be prodcued. Since the industry would no longer be able to afford the marketing power to tell people they like something when the really don't.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
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.