DRM Is Not the Answer

Is there such a thing as the "perfect DRM system"?  I don't think so, and I'm not sure one will ever be developed.  By "perfect" I mean it's got to be totally transparent and allow the consumer to use the content on however many devices as they want. Up to now, the best DRM solutions have only been a nuisance and the worst have made your system vulnerable to hackers (see Sony).

The music industry is still trying to figure out how to protect its valuable IP and also get back onto a growth pattern.  It's great to hear some smart people weighing in on the subject in this cnet article.  Chris Anderson says that some form of piracy should simply be accepted.  Terry McBride talks about leveraging an affiliate program where community members would have an incentive to recommend track purchases.

As I see it, the fundamental economics have changed dramatically in the music business.  When I was growing up I had to pay full price for an album that contained two or three songs I really cared about.  Now you can buy just those two songs for 99 cents each on iTunes; what would have been a $12 transaction (more or less) is now less than two bucks.

But just how successful is iTunes?  For Apple, it's huge.  For the music industry, I can't imagine the news is very good.  Do the math.  Apple's own press release says 2 billion songs have been sold on iTunes.  This article says Apple has sold approximately 70 million iPods since the first model arrived back in October of 2001.  That means the typical iPod owner has only bought 20-30 songs from iTunes...total...for the entire time they've owned the device.  Back in the 1970's and '80's, when the record labels were all getting fat and happy, I was probably buying the equivalent of 20-30 songs every couple of weeks, and now that's all they can get from the average iPod owner in the device's life!  Yikes.

The "problem" here is that the labels used to have the upper hand.  They controlled everything.  You had to buy the whole lousy album just to get the one good track.  Now things have tilted back in favor of the consumer, some would argue too much in favor of the consumer.  With this new economic model though, labels have to adjust their financial expectations.  If a typical CD generated $X in the good old days, that same CD now only generates a fraction of $X.  I can't imagine anything taking us back to those good old days, fortunately; thanks to a more efficient distribution model, there are too many legal ways to get just the music you want, without having to pay for those tracks you don't care about.

So what does DRM have to do with this rant?  Since total revenue equals number of tracks sold times price charged per track, and price charged per track is held constant (and below 99 cents!), the only way to drive up revenue is to somehow get people to buy more tracks.  My gut tells me as long as DRM is part of the equation, the total number of tracks sold will always be artificially and unnecessarily low.  The labels need to figure out how to draw in new customers and get all their customers to explore new artists, new genres, new albums, etc.  They can accomplish this by:

• encouraging exploration with even lower prices (yes, closer to zero than 99 cents),
• offering more "all you can download" options with monthly subscription fees,
• developing a solid affiliate program that not only encourages membership but also is so effective that it makes piracy seem silly,
• thinking beyond the track itself (as the cnet article refers to, by adding value with videos, lyrics, etc.),
• leverages innovative recommendation systems like Pandora's, and, most importantly,
• abandons any/all types of DRM...at least until it can be as transparent and consumer-friendly as it needs to be.

Comments

[Michael A. Banks]

Ah, and then they tried to get us to buy two more albums, Joe. They'd come out with the "best of" album, with only four of the five songs that they knew we really wanted. And they'd put the fifth song on a "greatest hits" album. Great marketing!

Which of course is why I like downloading songs. That, and the fact that some songs I've downloaded were obscure tracks on albums that aren't currently available.
--Mike
http://www.michaelabanks.com

[Michael A. Banks]

Anderson has a point about accepting some piracy. Right now you can pop over to eBay and buy a PDF version of The Da Vinci Code for 99 cents.

Yes, the entire novel, "complete with reseller rights." The layout is awful. These are illegal copies, conveyed on CD, via E-mail, and download.

I suppose we're stuck with this piracy. I tried last summer and fall to get a response from eBay, Brown's agent, and Doubleday. Nothing. I notice now that there are fewer people than usual offering the pirate copies on eBay, but they're out on the Web, too.

Some sellers offer a package pirate deal that includes all four of Brown's novels. One novel or four, each claims to have the same "authorized reseller rights" or quotes some made-up legalese attesting to the fact that they aren't doing anything illegal.

I believe some of the sellers actually believe what they're saying; they probably bought the E-book(s) in question from another seller and are blissfully unaware of violating copyright.

Here's a typical seller statement. I'm sure the seller won't mind us quoting it here. Note the defensive posture:
This item is either in the public domain or we have been granted resell or master resell rights. Proof of which can be provided if requested.

Ask for proof and you get an E-mail: "I bought reseller rights when I bought a copy of this ebook."

The book descriptions are stolen, too, by the way.

So, yeah, we're going to have to accept piracy, especially since eBay, some publishers, and some ISP's seem to give tacit approval.
--Mike
http://www.michaelabanks.com

[Joe Wikert]

Mike, I'd still like to think that some piracy or unauthorized distribution still offers some benefit in the long run. Whether it's word-of-mouth or other visibility, some amount of this has a favorable impact. Maybe I'm naive in thinking this outweighs the negative side of things, but I choose to be an optimist!

[BryanB]

I don't think DRM is the right question. How about "customer-generated pricing" as a way for the market to support budding musicians and to craete a new value system based on both download volume and price paid per track?
See Mitch Ratcliffe's Feb. 26 post at
http://blogs.zdnet.com/Ratcliffe/?p=268 about the new music site at www.songslide.com.

[Joe Wikert]

Interesting concept. I also found it fascinating that the average price paid per song has been $1.93, or almost twice the song price on iTunes!