An Economic Explanation For Why DRM Cannot Open Up New Business Model Opportunities
from the shrinking,-not-expanding,-the-pie dept
Continuing my increasingly lengthy series of posts on the economics of non-scarce goods, I wanted to take a look at an issue that I mentioned in passing earlier this week concerning the ongoing insistence among the entertainment industry (and the DRM industry) that DRM somehow will open up new business models. I'd like to explain why, economically, that doesn't make sense.
First, to clarify, I should point out that, technically, I mean that it doesn't make sense that DRM could ever open up feasible or successful business models. Anyone can create a new unsuccessful business model. For example, I'm now selling $1 bills for $1,000. It's a new business model (well, perhaps not to the dot coms of the original dot com boom), but it's unlikely to be a successful one (if you disagree, and would like to pay me $1,000 for $1, please use the feedback form above to make arrangements). However, for a new business model to make sense, it needs to provide more value. Providing more value than people can get elsewhere is the reason why a business model succeeds. So, any new business model must be based on adding additional value.
The good news is that value is not a scarce concept. Unfortunately, there are too many in this world who view value and growth as a zero-sum game. They believe that there's some fundamental limit on the possibility of adding value, and therefore, business models are about moving around a limited amount of value, rather than expanding it. It's the same fallacy facing those who have trouble understanding zero and infinity in economics. The economist Paul Romer's discussion on Economic Growth offers a concise explanation for this:
Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.Note that it's the non-scarce products, the recipes and the ideas, that helps expand the value of the limited resources, the ingredients. You expand value by creating new non-scarce goods that make scarce goods more valuable -- and you can keep on doing so, indefinitely. Successful new business models are about creating those non-scarce goods and helping them increase value. Any new business model must be based around increasing the overall pie. It's about recognizing that creating value isn't about shifting around pieces of a limited economic pie -- but making the overall pie bigger.
Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.
DRM is fundamentally opposed to this concept. It is not increasing value for the consumer in any way, but about limiting it. It takes the non-scarce goods, the very thing that helps increase value, and constrains them. Those non-scarce goods are what increase the pie and open up new opportunities for those who know where to capture the monetary rewards of that value (within other limited resources). DRM, on the other hand, holds back that value and prevents it from being realized. It shrinks the pie -- and no successful business models come out of providing less value and shrinking the overall pie. Fundamentally, DRM cannot create a successful new business model. It can only contain one.
If you're looking to catch up on the posts in the series, I've listed them out below:
Economics Of Abundance Getting Some Well Deserved Attention
The Importance Of Zero In Destroying The Scarcity Myth Of Economics
The Economics Of Abundance Is Not A Moral Issue
A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
Why The Lack Of Scarcity In Economics Is Getting More Important Now
History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
Infinity Is Your Friend In Economics
Step One To Embracing A Lack Of Scarcity: Recognize What Market You're Really In
Why I Hope The RIAA Succeeds
Saying You Can't Compete With Free Is Saying You Can't Compete Period
Perhaps It's Not The Entertainment Industry's Business Model That's Outdated
Reader Comments (rss)
(Flattened / Threaded)
by Anonymous Coward on Mar 1st, 2007 @ 1:15pm
Mike.. Simple question, Do you see any value in a subscription service? Pay a monthly fee and have access to unlimited ammount of content.
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Re: by CoJeff on Mar 1st, 2007 @ 1:47pm
I certainly don't! After you stopping paying the monthly fee then the music goes away. This is renting music and I'll admit to a certain curious nature of a service like that could be nice but certainly not at the current prices. I know a friend that love the subscription service for his boy cause then then he gets to pick a bunch but for me it won't work. However I don't worry about a service as my library can play for 3 months straight and is all DRM free. What drm tracks I did have I stripped off.
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by rishi on Mar 1st, 2007 @ 1:48pm
Mike,
I agree with most of your post. However I would take an objection to your point that the "recipe" or "intellectual property" is a non scarce good.Actually it is also a scarce good, because one can patent one's "recepies" and no one else can use them.
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Re: by Mike on Mar 1st, 2007 @ 2:04pm
Mike.. Simple question, Do you see any value in a subscription service? Pay a monthly fee and have access to unlimited ammount of content.
I think there's value in a subscription to *new* content. However, I do not see value in subscribing to previously created content. That's artificially limiting supply where it's not necessary and not helpful.
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by a on Mar 1st, 2007 @ 2:05pm
DRM is actually a good thing and it is needed.
There, I said it, DRM is a fact of life. That being said, the DRM that has been used by the music industry is not in their best interest.
Companies do need to be able to protect their content, but they also need to ensure that their customers can use their content the way they want. That doesn't mean being able to send it to their friends, but if they choose to use their content on a pda, a computer, their TV, whatever, they need to be able to do so.
Thinking that DRM is bad is just wrong. Bad DRM is wrong, but DRM itself isn't.
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by Evostick on Mar 1st, 2007 @ 2:26pm
DRM on full value goods, reduces it's value. But if the DRMed Goods are sold for a much smaller amount then value is created.
I rent films that I would never consider buying. The drm in this case is social (and monetary) becuase I have to return the film. DRM could be used to create a rental product.
Basically, if DRM can be implemented properly, then it can create new products.
I think I agree that it doesn't add value to an existing product.
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Not so fast by John B on Mar 1st, 2007 @ 2:45pm
As much as I hate the MPAA and RIAA and would like to believe that there business model does not add value and is inevitably doomed, this is not the case. As an economist by training, I see a number of problems with your reasoning.
Note that everything I say here applies to movies, too, but for simplicity’s sake, I’m just going to mention music.
First, as someone else here mentioned, the recipes and other intellectual property involved in producing music is scarce in the sense that not everyone has the talent and/or creativity to create music that people want to hear. If you don’t believe me, then you haven’t heard as much non-talented “music” as I have (even though I have very broad taste in music).
If talented musical artists cannot get compensated for their efforts, then they will spend more and more of their time doing other things to pay the bills, even if they like creating music, since they need to eat, have a roof over their heads, etc. In order for artists to get compensated, there needs to be a feedback mechanism where they get compensated if people like their music. If not such mechanism exists, then artists will underallocate the time they spend creating music and spend more time doing things that pay the bills. This is especially true as they get older and the cold hurt more, they need more medical care, etc.
Second, unfortunate as it may be, the music labels do add some value. Not much, but some. As the entities that distribute music, they offer exposure for artists’ music, which can benefit artists and consumers alike. Now, IMHO, they charge many times too much for this service. However, it is hard to deny that the music they distribute is valued by at least some of those who listen to that music. If it didn’t, people wouldn’t buy that music and the music labels would go out of business very quickly. And don’t give me that “brainwashed masses” argument. It’s condescending to the “masses” and intellectually dishonest.
Another argument that reinforces the idea that the music labels offer value to artists is that artists sign up with them. If the artists didn’t think that they would get any value out of the services music labels offer, then they wouldn’t sign up.
Note that many artists don’t sign up with music labels. However, having known many musical artists (I lived in Austin, TX for 5 years, a GREAT city for almost every kind of music, including punk, alternative, psychobilly, etc.), I think that that most often this is not due to the choice of the artist. Most artists would LOVE to be distributed by a label, even ones that create music because they love doing it and don’t really do it for the money, since they know that their music, which they believe in, will reach more people by signing up with a label than by not signing up. Still, some would never sign with a label under any circumstances, and that’s their right.
It seems to me that a business model that would work to get the maximum amount of music to the maximum number of receptive listeners would be an “expiring free listen license”. This would work on the same basic premise that the existing song segment approach uses (where you get to listen to part of a song for free, but if you want to listen to the whole song, you have to buy it). But I think it’s a bit more progressive.
Basically, I would envision a musical website where users would have the opportunity to listen to any music on the site, and they would get to listen to the song a certain number of times (probably something less than 10 times), which might be determined by the artist or by an agreement between the artists and the website, for free. After the user had listened to the song the allocated number of times, the ability to listen to the song would expire, unless the user paid for the song. Ideally, the website would also have other services, such as providing musical suggestions to users, based on their ratings of music they listened to, and artist, song and keyword searches, etc. I think this kind of website would add value to both users and artists alike.
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Scarce versus Non-scarce by Terry Steichen on Mar 1st, 2007 @ 2:51pm
Mike,
I think of Wikipedia as taking non-scarce resources (disparate, maybe fragmentary information about topics) and creating a scarce resource (a massive central source of organized information). That seems the opposite of statement that "[y]ou expand value by creating new non-scarce goods that make scarce goods more valuable.."
And a second point, I agree with an earlier commenter, that a 'recipe' may be a very scarce resource, if it is a secret or if it is patented. Yet if it has any value, the recipe would allow a (authorized) 'cook' to produce exceptional 'dining experiences'. This also does not seem to fit your stated principle.
Let me say that I'm strongly with you that DRM-based business models are fundamentally flawed, but I suspect my reasons for this belief are different from yours.
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Scarce versus Non-scarce by Terry Steichen on Mar 1st, 2007 @ 2:52pm
Mike,
I think of Wikipedia as taking non-scarce resources (disparate, maybe fragmentary information about topics) and creating a scarce resource (a massive central source of organized information). That seems the opposite of statement that "[y]ou expand value by creating new non-scarce goods that make scarce goods more valuable.."
And a second point, I agree with an earlier commenter, that a 'recipe' may be a very scarce resource, if it is a secret or if it is patented. Yet if it has any value, the recipe would allow a (authorized) 'cook' to produce exceptional 'dining experiences'. This also does not seem to fit your stated principle.
Let me say that I'm strongly with you that DRM-based business models are fundamentally flawed, but I suspect my reasons for this belief are different from yours.
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Re: Not so fast by Mike on Mar 1st, 2007 @ 2:55pm
First, as someone else here mentioned, the recipes and other intellectual property involved in producing music is scarce in the sense that not everyone has the talent and/or creativity to create music that people want to hear.
That's different. That's the creation of NEW content, which is scarce. The content created (or the recipes created), once created, are non-scarce. It's an extremely important distinction.
Second, unfortunate as it may be, the music labels do add some value. Not much, but some.
I never said they did not. I said that DRM does not add value. I actually think the record labels often add quite a bit of value in terms of promotion and distribution. I am not saying they don't add value. I'm explaining why DRM does not add value, but limits it.
Basically, I would envision a musical website where users would have the opportunity to listen to any music on the site, and they would get to listen to the song a certain number of times (probably something less than 10 times), which might be determined by the artist or by an agreement between the artists and the website, for free.
Yeah, see that doesn't add value. It takes away value from the competition -- which remains free file sharing. You don't build new business models by taking away value.
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Re: Scarce versus Non-scarce by Mike on Mar 1st, 2007 @ 2:59pm
I think of Wikipedia as taking non-scarce resources (disparate, maybe fragmentary information about topics) and creating a scarce resource (a massive central source of organized information). That seems the opposite of statement that "[y]ou expand value by creating new non-scarce goods that make scarce goods more valuable.."
How is Wikipedia scarce? Wikipedia is increasing value in a different way. It's taking a non-scarce resource (information) and making it value by helping people find that information (i.e., the scarce resource they're making more value is attention: people have only so much time and attention to find the information they need. Wikipedia is adding value by applying the non-scarce resource to help make the scarce resource more valuable).
And a second point, I agree with an earlier commenter, that a 'recipe' may be a very scarce resource, if it is a secret or if it is patented
That's a different situation. That's where you've created artificial scarcity, which is a market inefficiency that won't last.
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managing abundance by misanthropic humanist on Mar 1st, 2007 @ 3:06pm
"Possibilities do not add up. They multiply."
No, they combine factorially.
But let's move from math to psychology, which I think is far more important in understanding the zero-sum myth. Most people are not comfortable with abundance in Western society. They don't trust it as a stable state of affairs. Psychiatrists or psychotherapists will probably point to influences in the children of even very rich parents which instill a deep fear of impending scarcity. But in fact this a natural phenomenon, rooted deep within the primate behaviour since we are hunter-gatherers who live on a rotating planet that has seasons. We are essentially programmed to hoarde and worry about availability.
Read the Spolied Bastard strip (I gave a link the other day) where Timmy makes himself vomit by eating all the pies just to make sure that none of the other kids get to have any.
It takes a while to get your head around, but once you recognise the "your gain must be my loss" schema at work you will start to see it all around you in your friends, family, workmates and especially in the world of business and politics. It's a powerful and common human misunderstanding (pathology is too strong a word, it's the same counterintuition that means most people don't understand probablility)
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Business models by Terry Steichen on Mar 1st, 2007 @ 3:07pm
Mike,
How is Wikipedia scarce? Wikipedia is increasing value in a different way. It's taking a non-scarce resource (information) and making it value by helping people find that information (i.e., the scarce resource they're making more value is attention: people have only so much time and attention to find the information they need. Wikipedia is adding value by applying the non-scarce resource to help make the scarce resource more valuable).
Well its scarce because there's only one Wikipedia. But the point is that you could certainly build a number of potentially successful business models around Wikipedia. And this seems to contradict your belief about the underlying principle of what must go into a successful business model.
That's a different situation. That's where you've created artificial scarcity, which is a market inefficiency that won't last.I don't follow you. What's 'artificial' about it? And, why do you conclude that it "won't last"?
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by Overcast on Mar 1st, 2007 @ 3:22pm
They believe that there's some fundamental limit on the possibility of adding value
And that's just why technology's leaving them in the dust.
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Re: Business models by Mike on Mar 1st, 2007 @ 3:35pm
Well its scarce because there's only one Wikipedia.
Hmm. I believe you're defining scarcity in a different way. Wikipedia is not scarce. It can't be "used up." My viewing it doesn't make it any less possibly for you to view it.
But the point is that you could certainly build a number of potentially successful business models around Wikipedia. And this seems to contradict your belief about the underlying principle of what must go into a successful business model.
I'm sorry, but I don't see how Wikipedia undermines my point at all. I agree that there are any number of business models that come out of Wikipedia, and all are based on the fact that Wikipedia adds value. Which supports my explanation.
I guess I just don't see what you're trying to say.
I don't follow you. What's 'artificial' about it? And, why do you conclude that it "won't last"?
A patent is a construct. It's an agreement to pretend a non-scarce product (an idea) is a scarce one. That's why it's artificial. And it won't last because the very nature of a non-scarce good is that it can be shared infinitely. That's what I've been explaining here.
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Patents already don't last... by UniBoy on Mar 1st, 2007 @ 4:16pm
There good for, what, 20 years?
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Re: Re: Not so fast by John B on Mar 1st, 2007 @ 4:17pm
This post is so off-point in so many dimensions I really don't know where to start.
Economics is really at its core primarily about incentives to use resources efficiently. While "efficiently" can be and is defined in many ways, depending on where you want to end up, I am assuming that when we discuss music we want as much "good music" (another subjective term that I would be inclined to let an "efficient" market define) to get into as many hands as possible over the long run.
Saying that once content is created it is no longer scarce is like saying, "Well, you've already built the car, so why not just give it away?" Now, if you want to say that the marginal cost of reproducing digital music is very small, I buy that. But you're artificially breaking apart the necessary processes to get the digital music into the hands of those who want it. You're completely ignoring the incentive effect to create more new music. In the physical world, your logic would lead to completely depleting a natural resource that was limited, but easy to extract. Then it's gone. Your logic does nto lead to a sustainable system.
I'm explaining why DRM does not add value, but limits it.
Properly functioning DRM is a mechanism for recovering value. And that is its value. I was making the case why it is valuable to society in the long run if properly implemented.
Yeah, see that doesn't add value. It takes away value from the competition -- which remains free file sharing. You don't build new business models by taking away value.
Actually, it does create value. For artists, it: (1) offers them exposure and a facility that permits potential listeners to access their music and (2) creates a system for a feedback loop of rewards to artists so that they can make a decent living using their talents so that they continue to make new music. For users, it provides the opportunity to (1) find music they want to find; (2) find out about new music that they haven't heard yet; (3) listen to new (or not new) music for free; and (4) buy it if they want to continue using it indefinitely, which I woudl think would be valuable (otherwise, they wouldn't value it).
Providing "free" music as the primary method of music distribution in the world isn't sustainable unless some rich guy decides to spend billion of dollars per year to design and host a site for free. And even then, if artists are not compensated, they will eventually stop producing their art, or at least produce much less of it than they would if they were able to make a decent living off of it.
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Re: Re: Re: Not so fast by Nate on Mar 1st, 2007 @ 5:00pm
That's exactly what he's saying. If there were no government-sponsored legal system to prevent you from copying a BMW, anyone who had the necessary funds could make a copy of a BMW. The value in a BMW comes from the value added by BMW.
Name Brand.
Expensive styling options.
Integrated Bluetooth.
BMW is constantly innovating to create cars that people will pay exorbitant sums for.
You are not buying a BMW, you are buying the image of someone with a BMW.
You focus is still too narrow, for the artists the values are the same under either business model. Initially I agreed with your proposal for an expiring DRM to "test-drive" songs, until being reminded that the competition is free. Storage costs are negligible as well. The money, for the RIAA is where it's always been: touring & selling merchandise.
people don't go to concerts specifically for the music, they go for the experience. some of them will inevitably buy merchandise to commemorate the occasion. Companies who jump on the bandwagon and take advantage of digital delivery are going to eventually reap massive amounts of money selling anything they can think of that is a "one-off".
if you weren't here. you weren't living
As a matter of fact, if anyone's got the advantages necessary to get started, it's them! They can start investigating the millions of bands cluttering MySpace and getting demos. just cleaning up the sound on some of these guys would probably get them started towards making some money.
find the really good ones! get them out there! digital advertising!
NOW PLAYING IN YOUR LOCAL BAR:
Artists are going to have to give up on their dreams of becoming huge mega-stars and accept that if they're truly artists they have to work for a living. work is difficult, exhausting, and after 30 years of it you get to retire. what kind of artists can innovate for 30 years?
innovative ones.
ones who are constantly looking around, evaluating what they bring to the world...and increasing their value.
the money's out there boys, you're just not in the industry you thought you were.
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archaic thinking by misanthrpic humanist on Mar 1st, 2007 @ 5:20pm
John. I believe you really have an enourmous journey ahead of you to start to grasp the concepts being discussed here. Sorry, but you are engaging in a 21st century argument with 20th century ideas and I don't think you realise how different the ideologies discussed on this site are from your position.
"Properly functioning DRM is a mechanism for recovering value."
Comple nonsense, unless you are using the word incorrectly. It is a mechanism for extracting profit by creating artificial scarcity and lowering the product value. Please take a look at many of the threads on this site and understand that we draw subtle but very important distinctions between "value", "profit", "wealth" and "money".
"For artists, it: (1) offers them exposure and a facility that permits potential listeners to access their music"
It offers no such advantage, in fact it restricts that process. They already have that mechanism which does not require DRM.
It's called the internet, a system of interconnected servers and routers that provides dissemination of material for practically zero cost.
" and (2) creates a system for a feedback loop of rewards to artists so that they can make a decent living using their talents so that they continue to make new music."
Firstly, they already have that. See above. There is simply no incentive for an artists to cripple their work and reduce its interoperability with commonly used standard playback systems.
You completely fail to understand the motivation of artists, which is not primarily financial. Musicians whos primary motivation is money tend to make shit music. The old system to which you allude is one which selects only a few artists to be the privillaged benefactors of a system that rewards them at the expense of all other musicans, it is exclusive, devisive and an attempt to perpetuate the zero-sum fallacy that we are arguing against here.
"For users, it provides the opportunity to (1) find music they want to find"
No. That is a search and refinement problem, it has nothing whatsoever to do with DRM.
"(2) find out about new music that they haven't heard yet; "
Again, what possible relevance does DRM have to the task of selection by categorical similarity in genre?
"(3) listen to new (or not new) music for free; "
Again, DRM plays no part whatsoever in this process which is accomplished by the available tools of P2P, aggregation and DJ sites, netlables and individual artist site indexes.
"and (4) buy it if they want to continue using it indefinitely, which I would think would be valuable (otherwise, they wouldn't value it)."
You are working with an old paradigm of "buy" and "value" which I suspect involves reducing the "song" to a unit product of fixed cost. The modern internet culture is about building relationships between audiences and artists at a peer level. Many successful models are emerging where the audience pay for music directly to the artist or netlable through subscriptions, donations, and other social exchange currencies (such as promoting, hosting, dissemination). In itself data is just bits, 1s and 0s, it has no value whatsoever. The value is a psychological connection, a relationship between the listener and the artists product in regards to its emotional and cultural context.
"Providing "free" music as the primary method of music distribution in the world isn't sustainable unless some rich guy decides to spend billion of dollars per year to design and host a site for free."
Absolute nonsense. Go and search the internet for the MILLIONS of artists out there who now manage and administrate their own output. The modern artist is very technologically savvy and sees maintainance of their own site as part and parcel of the business of dissemination and identity. Hosting and bandwidth is virtually a commodity and these days only absolute amateurs have not taken the step to manage their own output.
"And even then, if artists are not compensated, they will eventually stop producing their art, or at least produce much less of it than they would if they were able to make a decent living off of it."
Please search the archives and see how many times this erroneous thinking has been shot down in flames. Financial reward is not a precursor to artistic output. There is no one to one or proportional correspondence between cashflow and artistic output. Some of the best bands and solo artists around today have proper day jobs as professionals in other domains. They use this as a platform to make art in their spare time, which eventually becomes an additional income (sometimes exceeding their salary). The old days of the record company sponsored full time artist is virtually dead save for a few plastic manufactured pop acts and touring stadium rock bands from the old guard.
I hope you can get up to speed on the philosophies and observations under discussion here, but it will mean letting go of a lot of what you think you know about the old music business.
with respect
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Re: Re: Re: Re: Not so fast by John B on Mar 1st, 2007 @ 5:39pm
You're missing the points I am making entirely. Also, you’re mistaken about the BMW on one point: Anyone with the necessary resources (which would be pretty significant) can make a BMW. Patent law doesn't prevent you from making a copy; it prevents you from using the patent for commercial purposes. You can make a BMW for yourself, you just can't sell it. But I get your point about buying an image, and I think that's a valid (if obvious) point.
Now on to the more important points (IMHO):
First: "for the artists the values are the same under either business model" No. Under my model they get paid, under a free music model they don't.
Second: "Initially I agreed with your proposal for an expiring DRM to "test-drive" songs, until being reminded that the competition is free." Free music isn't a sustainable model. If not one gets paid, no one is going to keep creating music for long; there are too many bills to pay. And no one is going to keep up a website and its associated capabilities (search, taste-matching databases, high speed throughput, etc.) for free.
Finally, I want to agree with you on a very good point you made that agrees with a realization I had seven or eight years ago:
Artists are going to have to give up on their dreams of becoming huge mega-stars and accept that if they're truly artists they have to work for a living. work is difficult, exhausting, and after 30 years of it you get to retire. What kind of artists can innovate for 30 years?
innovative ones.
ones who are constantly looking around, evaluating what they bring to the world...and increasing their value.
I'm glad other people are finally realizing this. Round about 1998, I realized that modern society was going through a major transformation. It's moving from a mass media model back to a tribal model. Only, instead of the tribes being based upon ethnicity and geography, as they were for thousands of years (and still are today in some places), the tribes are based upon interests and belief systems and values. And membership is optional and movable.
Opt-in to a tribe of your choice!
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Re: Re: Re: Not so fast by Mike on Mar 1st, 2007 @ 6:20pm
Saying that once content is created it is no longer scarce is like saying, "Well, you've already built the car, so why not just give it away?"
Um. No. It's not at all. A car is scarce. If I take your car, you no longer have it. If I copy your song, you still have it. That's the entire root of this discussion. I would suggest that you go back and read through the earlier parts of this series.
You're completely ignoring the incentive effect to create more new music. In the physical world, your logic would lead to completely depleting a natural resource that was limited, but easy to extract. Then it's gone. Your logic does nto lead to a sustainable system.
This is false. I am not at all ignoring the incentive effect. I have discussed this at length. Increasing value does create incentives. The trick is figuring out where those incentives can be monetized.
Properly functioning DRM is a mechanism for recovering value. And that is its value. I was making the case why it is valuable to society in the long run if properly implemented.
No. You are looking at value incorrectly. You are only looking at it in terms of the producer -- which is meaningless. Value only matters from the perspective of the consumer.
Providing "free" music as the primary method of music distribution in the world isn't sustainable unless some rich guy decides to spend billion of dollars per year to design and host a site for free
Yes, that's why there are so many bands that have learned how to profit from giving away free music. I'm sorry, but you are simply wrong.
And even then, if artists are not compensated, they will eventually stop producing their art, or at least produce much less of it than they would if they were able to make a decent living off of it.
First, you are making the false assumption that I said artists won't be compensated. That's not true at all. I have said there are actually more opportunities for them to be compensated in this system, because they will have more attention and more value.
Please read some of the past articles in this series, because it explains a lot of these points that you seem to be missing.
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Re: archaic thinking by Anonymous Coward on Mar 1st, 2007 @ 6:25pm
With all due respect, MH, I think I understand this far better than you do. I have been studying these kinds of issues in both academia and the business world since I was in graduate school 16 years ago. I have founded and owned two internet-related businesses (the current one is earning me a nice income), and one of which was music-related (oh, and it was "free").
I understand value, but I think you have too narrow a definition. DRM helps recover investment. It recovers money. If you don't think money is valuable, please send me all of yours. I am sure I can find something valuable to do with it.
"For artists, it: (1) offers them exposure and a facility that permits potential listeners to access their music"
It offers no such advantage, in fact it restricts that process. They already have that mechanism which does not require DRM.
It's called the internet, a system of interconnected servers and routers that provides dissemination of material for practically zero cost.
I don't think you understand the interrelated points I am making. But first I think I need to clarify something. Time is valuable. To everyone. Without exception. The search costs of finding music that one likes on the wide open internet, in terms of time, have become enormous. And, when you find the music you like, I'm betting that it's on a website somewhere, where someone has to pay for it. And program it. And maintain it. Etc. Web sites don't just happen. Web servers don't just appear. Eventually, they have to be paid for. That's one reason (not the only one) why the free music model isn't sustainable.
Don't get me wrong. I know there will always be "free" music. "Free" music existed long before the computer was invented. People sang and played instruments in their houses for family and friends and didn’t charge a penny for it. But the range of songs was very limited, quality was highly variable and it required a fair amount of effort to produce each time it was heard.
Now, the costs of reproducing the music are much lower. It's the search costs and the background infrastructure costs that are more important. Organizing the songs, "match-making" (between interested listeners with songs they like) and reducing search time is the advantage of having them on one or more related structured websites. And that doesn't happen for free for long.
Firstly, they already have that. See above. There is simply no incentive for an artists to cripple their work and reduce its interoperability with commonly used standard playback systems.
You completely fail to understand the motivation of artists, which is not primarily financial. Musicians whos primary motivation is money tend to make shit music. The old system to which you allude is one which selects only a few artists to be the privillaged benefactors of a system that rewards them at the expense of all other musicans, it is exclusive, devisive and an attempt to perpetuate the zero-sum fallacy that we are arguing against here
Money is an incentive. Like it or not, it is. Money is a means. It is the liquid asset that reduced the need for bartering, which was a very cumbersome way of doing business. And I do understand that artists do what they do for reasons other than money, as I have specifically indicated in my previous posts. I like to write. I write poetry and have even won some national awards for it. I do understand the artist motivation very well. I wish I could make a living at it. But, realistically, I can't. And so, like many other people who like to create, my art is relegated to being a small hobby, since I can't make a living at it. People will only spend so much time doing something that doesn't make them a living when there are bills to pay. I've lost count of the artist friends that I have had who were talented and did not do their art for the money, but who have either stopped doing their art or do it very rarely because of the pressures of everyday life. Now, if they could make a decent living at it (and I'm not talking riches here, I mean even $20-$40K per year), they would still be doing it. By the way, I do agree with your last sentence in the paragraph above.
No. That is a search and refinement problem, it has nothing whatsoever to do with DRM.
So, who pays for developing and maintaining it? That's where DRM comes in. It's a means of financing the necessary infrastructure. I know that sounds like the rationale for the old record labels, and there are some similarities in the logic. But what I am proposing is much closer to the peer-to-peer situation you espouse than I think you realize. Bandwidth and server hosting costs have gotten quite reasonable, but they are not as close to zero as you seem to think. But, to the extent there is competition in the market, which I think there is, these costs will work their way into the business model I am proposing.
Let me clarify something. The system I am envisioning would not charge $1 per song, like iTunes, but probably closer to 10 cents per song, or whatever would cover the costs of establishing and maintaining the system.
Let me ask you this: Which is more efficient, both in terms of IT resources and in terms of user and artists cost in terms of time: 3 million websites on 500,000 servers spread around the globe with no organized connection OR one or a handful of competing sites that actually help organize and track the stuff? Which do you think will have lower search and transaction costs? Now, which do you think is the most likely to be the dominant model?
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Re: Re: Re: Re: Re: Not so fast by Mike on Mar 1st, 2007 @ 6:25pm
Free music isn't a sustainable model. If not one gets paid, no one is going to keep creating music for long; there are too many bills to pay. And no one is going to keep up a website and its associated capabilities (search, taste-matching databases, high speed throughput, etc.) for free.
Again, you are making a very wrong assumption here, that no one is getting compensated. We have made it abundantly clear that there are plenty of ways to get compensated by focusing on things that are actually scarce: access to the band, concerts, merchandise, new songs (which are scarce until created), etc, etc, etc. There are many different business models for getting paid (and getting paid more than they do under the current system) and then using the actual music (which is non-scarce) as a promotional vehicle.
So, everything you say about musicians not having incentive is simply wrong. There are still incentives. They're just different. There is still compensation. It just comes from different places -- and thanks to the new system it's even easier for *more* artists to make *more* money than they would have otherwise, because it takes out many of the initial barriers in terms of cost of production, promotion and distribution.
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Re: Re: archaic thinking by Mike on Mar 1st, 2007 @ 6:32pm
I understand value, but I think you have too narrow a definition. DRM helps recover investment. It recovers money. If you don't think money is valuable, please send me all of yours. I am sure I can find something valuable to do with it.
There's an important distinction in here: recovering investment has nothing to do with expanding value. It's another form of the broken window fallacy. Just because many exchanges hands, it doesn't mean that value has been increased.
Let me give you an example. I "invest" $1000 to outfit a burglar to go rob every house on the block. I have recovered plenty of money on investment. But have I increased value? No. I have increased my own net worth, but at the expense of someone else. That's a net negative, and is not a sustainable growth model. Growth is based on adding value so that everyone gains out of a transaction. DRM doesn't do that. It only benefits one side while limiting the other.
Now, the costs of reproducing the music are much lower. It's the search costs and the background infrastructure costs that are more important. Organizing the songs, "match-making" (between interested listeners with songs they like) and reducing search time is the advantage of having them on one or more related structured websites. And that doesn't happen for free for long.
Well, first, I'd say that it does happen for free -- if you look at the peer production world, there are plenty of models where it makes sense and has happened.
But, again, you make a very big false assumption here that the *only* way to get money out of the system is with DRM. That's false. Nothing that you say requires DRM. DRM only limits each of the models you discuss.
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The SellaBand business model by Isaac on Mar 1st, 2007 @ 7:03pm
"If I give you a pfennig, you will be one pfennig richer and I'll be one pfennig poorer. But if I give you an idea, you will have a new idea, but I shall still have it, too."
-- Albert Einstein
There is a new music startup with a business model that does use non-scarce goods to its full potential: SellaBand. They let everyone download the music for free (no DRM). They will generate revenue with ads on the download site, to cover the hosting. They let the community finance the recording by selling $10 parts up front (they can get a refund, so there is no risk), for which they will also receive a limited edition CD. That also provides them with a revenue stream from the interest on the money paid up front. You can read it all on their site, the main feature here is the free downloads and that you can create a sustainable business model that preserves non-scarce goods, meaning: without limiting their use which artificially makes them appear as 'scarce'-goods.
From the point of view of the 'common good' it is highly desirable not to put artificial limitations on non-scarce goods. For example we would like the people in the developing world to be freeloaders when it comes to Wikipedia. That is why I would prefer the SellaBand business model over subscription models. However if too many in the western world try to get a free ride, a subscription model might give better results. I think we should try both and see what works best.
(I'm sorry if this is a double post)
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Re: Re: archaic thinking by Vincent Clement on Mar 1st, 2007 @ 11:09pm
I understand value, but I think you have too narrow a definition. DRM helps recover investment. It recovers money. If you don't think money is valuable, please send me all of yours. I am sure I can find something valuable to do with it.
This has nothing to do with how "narrow a definition" we are using. It has to do with perspective. An artist may see value in DRM because, as you say, they believe it will recover their investment. The end consumer sees no value in DRM because it restricts how they can use the content. If the consumer sees no value in DRM, then it is likely to fail, regardless if it is useful to the artist.
The only way for DRM to 'succeed' is by passing laws that makes DRM mandatory for all digital sources. And that my friend, is a government approved distortion of an efficient market.
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Re: Re: Re: Re: Re: Re: Not so fast by Paul on Mar 2nd, 2007 @ 1:02am
Free music isn't a sustainable model. If not one gets paid, no one is going to keep creating music for long;
I'd say there's a fundamental misunderstanding illustrated here. Nobody's arguing that music should be given away - the argument to use the open source terminology is that music should be free (as in freedom), but not necessarily free (as in beer).
I get all my music free - as in DRM-free. I subscribe to eMusic, where artists get paid for the music I download. I download podcasts from clubs and radio stations, where either contacts involving artist payment have been made, or the artist/producer have made a decision not to charge for that performance on the hope that it leads to further sales.
I'm not stealing music. I'm simply getting my entertainment from sources that don't assume I'm a criminal. I don't use iTunes due to DRM (because Apple don't want me to use my purchased music on my non-iPod mp3 player or on my Linux desktop). I don't buy major label albums (because I don't want to financially support any DRM actions). However, the artists I enjoy get paid by me for entertaining me.
And that's how it should be. DRM is about removing certain rights (the right to play back in the device of my choicefor instance), and then 'sell' those rights back to you, ad infinitum.This doesn't encourage anything other than a lack of innovation in the record industry, where they can argue that profits are theirs, but any losses are due to 'piracy' rather than their own actions.
As for the second point above, a true artist creates because they want to, not for money. The 'starving artist' cliche came about for a reason - most people who create, be it music, books, paintings or anything else, do it because they want to, for their own personal satifaction. Anyone who only creates for the money is a hack, and we're better off not encoraging hacks.
Wow. Sorry for the vent guys :)
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DRM by Karine on Mar 2nd, 2007 @ 1:14am
Interesting points brought up by all... I agree DRM is a lose-lose situation for all. Plus anyone can turn a DRM-song into a non DRM-song! I've never done it, but I know I could easily. Soon the whole model is going to change anyway, more and more consumers are using encrypted file-sharing to swap files, GigaTribe being the most recent example ( http://www.gigatribe.com ). The record and movie industry needs to eliminate all middlemen and cut prices in half, THAT will make for a more profitable business.
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Sorry by Maximus on Mar 2nd, 2007 @ 2:35pm
Sorry Mike, I think you're out in left field on this one.
The reason people say that DRM INCREASES the pie is because it can be used to offer different levels of value for different prices.
For example, DRM, with its constraints, would allow you to download a song you can only listen to once. That song would cost substantially less than a song that 's totally unlocked. If there is someone who only wants to hear a song once, for, say, $.25 cents, VOILA! you've created value. That would be impossible without DRM.
That's the argument.
-Max
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Re: Sorry by Mike on Mar 2nd, 2007 @ 6:58pm
The reason people say that DRM INCREASES the pie is because it can be used to offer different levels of value for different prices.
Again, you've made the same mistake that others made. That appears to increase value for the producer, but not the consumer, and thus TAKES AWAY value from the consumer.
For example, DRM, with its constraints, would allow you to download a song you can only listen to once. That song would cost substantially less than a song that 's totally unlocked. If there is someone who only wants to hear a song once, for, say, $.25 cents, VOILA! you've created value. That would be impossible without DRM.
Again, that doesn't create value. That takes away value from the user. They are buying something that's limited for much more than they can get it from other sources..
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Re: Re: by Frumious B on Mar 2nd, 2007 @ 8:40pm
Mike wrote:
I think there's value in a subscription to *new* content. However, I do not see value in subscribing to previously created content. That's artificially limiting supply where it's not necessary and not helpful.
I'm just so confused. Scenario: I realized last week I wanted to find the John Prine album that had "Sam Stone" on it. And since I subscribe to an all-you-can-eat music service, in seconds I was listening to the album. I don't care if it vaporizes after I stop subscribing. The John Prine album happens to be old content. The story could just as easily been about Erin McKeown, whose album is new. Why the new/old difference? I value both identically.
Without quoting lots of economic gobbledeygook which I find incomprehensible, can you concisely explain why I shouldn't value this? I truly don't understand your assertions in the context of what I'm doing with my subscription music service.
Is the problem that since I can find the same album (maybe?) on a file-sharing service, I'm not acting in my self-interest by paying for what I could get for free (and unencumbered by DRM)? I'd counter by saying I find the catalog, browsing, playing experience superior to file-sharing services. And if DRM on the content is the cheapest and most effective way to get someone offer that service, I'll accept the limitations.
As a consumer, I want someone to collect the catalog, index it well, and make it super simple to play the music I want. And I want to do that for tons of music while still paying one price per month. I don't understand how I can entice an outfit into doing that unless I pay them. And if others can use the same service without paying, I think the outfit generally won't get paid. Hence DRM helps me get catalog builders / distributors to do what I want.
Without DRM, how does your "economics of scarcity" jibber jabber get them to do what I want?
BTW, do you think HBO should be free too?
Don't misunderstand and take this to mean I love limitations on my media, tolerate rootkits, appreciate being treated like a criminal by my software, etc. Those who make DRM and those who use it are doing a rotten job most of the time. But I think I want them to make it better vs. wanting them to go out of business. Because they're making something I value.
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John B is so short sighted by ScytheNoire on Mar 3rd, 2007 @ 12:20am
I'm shocked how short sighted John B is, he sounds like the RIAA/MPAA is shoving money in his pockets to spew bullshit.
DRM adds no value to a product. Music industries were needed for distribution, but with the internet, and small file size of music, along with broadband, music labels are no longer needed to distribute music. Any one can distribute music.
Music labels used to promote bands, but now bands get better promotion by going online and advertising to their target community. Go to punk sites if you are punk, country sites if you are country.
There are still some hurdles, such as the corruption of the radio industry and the labels controlling what gets played, meaning the same boring crap gets played over and over. But this too is changing.
The music labels are no longer needed. It can all be done on their own. And if a band truly wants good promotion, they would go get a loan if needed, or get private investment, and then spend the money on an actual advertising firm to get true advertisement.
Same is going to be true for movies, the movie industry is going to no longer be needed. Internet speeds will get faster, making movies will get easier with technology, private investors and banks will fund projects worthy of funding, and advertising firms will advertise it.
I look at how popular "This film is not yet rated" was even when the MPAA tried to block it and stop it from reaching the public.
Fact is it's a new world for media, the MPAA and RIAA have fought against it, and they losing badly. They will die off because they refuse to change with technology and adapt. The future has no need for companies that try to control the content, as there are enough out there to make sure that the control thrives without control.
Good bye RIAA and MPAA, you will not be missed. You were too old, too slow, and too stupid to survive in the 21st century.
I think they could really take some lessons from the porn industry.
By the way, releasing music for free, as promotional for where artists make their real money, in concerts, is the most brilliant move. Too bad that just means cutting out the labels, because they just aren't needed.
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Re: Re: by Giovanni on Mar 3rd, 2007 @ 9:23am
Then again, what about GameTap? It's a service that allows access to 700+ old games for $10 a month, and it's been here for almost a year now.
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Re: Re: Sorry by Maximus on Mar 3rd, 2007 @ 9:30am
Mike, I have to disagree with you here.
There are a lot of people who wouldn't pay full price for a song if they only wanted to listen once. Downloading songs for free is illegal, so a person who only wanted to hear a song once would be out of luck without DRM. That economic transaction WOULD NEVER TAKE PLACE. Think of it as the part below the equilibrium point of the demand/supply curves.
With DRM, people argue, you could create a song lock to only be played once, for much cheaper than unlocked songs. That would enable these transactions to take place, thus CREATING VALUE. This is a valid argument.
However, given reality, where people can download songs for free, this argument rendered invalid.
-Max
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Re: Not so fast by Anonymous Coward on Mar 3rd, 2007 @ 9:59am
DRM assures the Companies profit, not the artists ones.
Most musicans make a living by doin live concerts, not selling discs.
It is the lavels that take almost all the money from that sells
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Emmy Noether on DRM by AN on Mar 3rd, 2007 @ 10:08am
Nice reading on the subject. "Emmy Noether on DRM"
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Do you actually know any economics? by Hal on Mar 3rd, 2007 @ 10:28am
Are you familiar with the distinction between public goods and private goods? Public goods are defined as non-rival and non-exclusive. That is, if you give it to someone, you still have it and can give it to someone else; and, if you give it to someone, everyone else can get it. Classic examples are clean air and national defense. Content without DRM is a new example of a public good.
Private goods are conventional physical goods which have opposite properties.
The reason for the distinction is that public goods are under-produced in a free market. That's why government has to intervene to make sure they get produced. Private companies do not provide clean air, because they can't limit it to their customers. Public goods are terribly inefficient, economically.
In contrast, private goods are optimally produced by the market. The level of production automatically adjusts to satisfy social needs while reflecting inherent costs.
DRM is fundamentally an attempt to be able to turn content from a public good into a private good. It will act more like a pencil, something that can be controlled and limited and charged for, than lie clean air, which everyone gets automatically without paying for it. And this is a GOOD THING. It means that the levels of production will be optimal even without government regulation.
Without workable DRM, we will have too little content produced, and the only solution will be some kind of government action, lie a tax on downloads which gets fed back to content creators. That's the direction we are going to end up in if DRM can't be made to work. It's no different from pollution control, public safety or other public goods. Sooner or later the government will take over responsibility for them, if the market can't find a way to privatize them and ensure that the creators and distributors reap the profits from what they create.
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This is a stupid argument! by Lyle Edwards on Mar 3rd, 2007 @ 11:06am
So because I lock the front door to my house, somehow I am shrinking the economic pie for furniture, electronics, appliances, jewlery etc.. This is the dumbest argument I have ever heard. Locking my door does not create a new business model, but it sure expands and extends the existing legitimate business models. In fact, by locking my door and adding a security monitoring system, a whole new bsuiness is born. You are foolish to think that just because it is on the internet is shold be free. This is more the attititude of a communist. The collective good. Non-sense. Dribble. Pablum.
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Someday they'll learn.... by Mike on Mar 3rd, 2007 @ 11:13am
Someday the music companies will come to understand this amazing and (apparently to them) secret knowledge. Until then they'll be stuck trying to sell their DRM-laden garbage.
Mike
Quick Trivia!
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Oh Come On! by Paul on Mar 3rd, 2007 @ 11:25am
More than a few years ago, content could not be copied efficiently. I could get a copy of a tape from a friend, but I couldn't get 1,000 without significant effort. The fact that I could copy something was pretty much ignored because it was impossible to scale up. Nobody really "respected" copyright in any way, people were just practical.
Today, there still is no "respect". DRM is an attempt to enforce respect for copyright. It fails in this. For the most part, it is ignored, bypassed and broken. The poster saying DRM is an attempt to take music from the public domain and make it private is correct - without effective DRM music will be shared and not paid for because most people aren't going to pay for it.
Like shareware, perhaps 5% of the people will pay for music. The rest will just listen. As they are doing today. At this level of compensation there is no "promotion" or radio air play. We are looking at a significant change in a large segment of the Western economy because of this. Oh, the artists will find other ways to make money. Not as much, probably, but they won't starve. But the millions of jobs that today are in music-related industries (distribution, trade publications, radio, stores, etc.) are going to be gone.
It doesn't have much to do with DRM anymore. DRM is being walked around by the people that it is designed to affect, and it is a short stroll. DRM discussions assume there is an alternative yet to be discovered. It has been discovered, and it is called P2P sharing and advertising supported web sites hosted in foreign countries. You get it for free, today. I don't see putting the genie back in the bottle has a chance.
If you work for a business that derives revenue from music, I'd be looking for a new line of work. Soon. The change is coming.
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It's all about the benjamins by Freddie on Mar 3rd, 2007 @ 12:20pm
Something to keep in mind when thinking of how DRM affects the artists. Most artists, not all, but 99%, do not make much money at all off the album sales. Instead they get their paydirt from their own tours. DRM isn’t really affecting the artists, it’s affecting the labels and the RIAA. Why do so many small independent labels support DRM free content? It’s all about money, we all know that, and the more control they can exercise over their product the more money they think they will have. The reality of DRM dieing any time soon is slim to none in the music industry. About as likely as Microsoft open sourcing Vista.
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Agreed by Maximus on Mar 3rd, 2007 @ 12:53pm
Agreed. DRM works. It protects content. Circumventing it is just too easy. But remember, circumventing it is ILLEGAL.
Yes, Artists get most of their money from concerts. But, recording fees (which are very high) are paid for by the labels. Without the labels, there would be much fewer artists out there, just the same as if there were no venture capital industry, there would be far fewer startups.
Labels take a chance on an artist and need to make their money back. Ok, they're evil and price-gouging, but that doesn't matter. Fact of the matter is that they serve a purpose.
Don't get me wrong; I don't like DRM as a consumer. But I recognize that it serves a purpose. Just because we share songs, and don't respect laws, doesn't mean that DRM is faulty.
Please understand that there are many good/valid arguments for keeping DRM around. Don't buy into the hype. Until the music industry finds a whole new way of monetizing music, DRM will be a reality.
-Max
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Re: by Mark on Mar 3rd, 2007 @ 1:03pm
I rent films that I would never consider buying. The drm in this case is social (and monetary) becuase I have to return the film. DRM could be used to create a rental product.
When you "rent" films the actual business model involved is that of a lending library. The way this works is to allow a scarce physical media to be used by many people. It's a requirement of this that you bring the book, tape, optical disk, etc back to the library within a certain period of time. So that someone else has the ability to use it. There is quite a deal of expense involved in running such a library, including deciding what stock to carry in the first place, ensuring it is sensibly arranged on the shelves, handling issues/returns, dealing with damaged media, chasing copies which arn't returned on time, etc.
If instead of dealing with physical media libraries handled copies of computer stored "content" then things radically change. No need to decide how many copies of whatever to hold, no need to bother with the whole issue/return thing, no more problems with stock being stolen or defaced. Less actual need for physical libraries. Where you do have a physical library you'd have then selling writable (or R/W) optical disks and portable memory devices (for people who hadn't brought their own). With a choice between "self service" and having a librarian help you choose what to download.
The idea of files which become unreadable after a certain period of time is rather pointless. If you are running out of storage space you either delete some files or buy more storage media.
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Promotional music ... future by Eric on Mar 3rd, 2007 @ 1:58pm
Many artists use music as a purely promotional purpose these days, which shows us something interesting: Artists realizing their real value as artists and not entertainers. An example I will use: http://www.generationtrance.com/
DJ Gt and Project c do promotional work with other artists who communicate on their website. They post all their music for download as well as play on DI.FM, internet radio.
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Re: DRM good? by David on Mar 3rd, 2007 @ 2:08pm
Why is there a need for Digital Rights Management? Why is it good? These are the same companies that got as big and powerful as they are in the age of tape recorders and mix tapes. I put every album I ever had on tape at some point, I gave some away, I made copies of others. I purchased music.
Getting rid of drm wont change a thing except it will open up the market for players. The idea that a record company can make you pay for nearly every instance you own of their song is b.s. If they want to make more money, "package, repackage, re-evaluate the costs." Add new mixes, make new versions.
Music IS non scarce, add value to the product, stop limiting its use. I can give away a book I have. I can give away music I have. I can make a copy and play it in my car. There is no stopping the sharing... but there can be a way to create more value. That or the simplest thing is, like every other institution, RIAA's companies will have to deal with less profit.
just my two stolen cents.
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Re: Agreed by Rusty on Mar 3rd, 2007 @ 2:08pm
Recording fees are high because the record labels are free to set them. Artists are forced to use the record label's studio when they sign their contracts. It's an artificial monopoly. You can convert your basement to a recording studio for much less than the cost of a typical recording session.
As the article says, circumventable DRM only reduces value. It is just as illegal (and easy) to circumvent DRM as it is to pirate content.
However, I generally have to circumvent DRM to watch content on my media center computer or portable music player. Therefore, when I watch a DVD, I break the law.
If I couldn't circumvent the DRM, I'd have no incentive to pay for the content, except, perhaps, charity for the artists. Indeed, I waited until DeCSS was available until I purchased my first DVD.
I own an HDTV. If BluRay and HD-DVD players were free, and HD movies were half the price of DVD's, I would still buy DVD's. The cost of changing my habits to deal with the DRM outweighs the benefit of viewing the content.
I happen to use free (as in "freedom to modify") open source software for most things (I need it for work, am paid to develop it, and prefer it at home). Any modifiable DRM implementation would allow circumvention. Even if I didn't use Linux, current DRM is a nightmare for portable music players. Besides, DRM'ed content isn't guaranteed to play next year.
In all but a few rare cases, artists receive no value from DRM. They don't profit from album sales and DRM makes it harder for new fans to discover them.
A while ago, I mentioned charity. Much less than 10% of most CD sales go to the artist, while the rest goes to the RIAA. If it were legal, I'd send the money directly to the artist, and download a pirated copy instead. Given the hardware I own, listening to DRMed music is illegal. Since either route is criminal, I guess I'd have to let ethics guide me. That's bad news for the RIAA.
So, with apologies to Max: "Don't buy into the hype. Until the artists find a whole new way of monetizing music, abusive record labels will be a reality."
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Re: Re: Re: Sorry by Matt on Mar 3rd, 2007 @ 2:27pm
I doubt that there are that many people who only want to listen to a song once. I'm pretty comfortable stating categorically that the economic cost of the DRM needed outweighs any possible benefit of creating a single listen format.
The fundamental problem is that if you have such limited interest in a song that you only want to hear it once, wouldn't you be better off listening to a song that you like more and have already bought? Or simply not listening to music at all? If you won't pay a $1 for a song, will you pay $.50? $.25? $.10? At $.10, the DRM and payment (think $.20 for a visa transaction) overhead would kill any possible profit.
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Re: Re: archaic thinking by Robert Krawitz on Mar 3rd, 2007 @ 2:49pm
This makes no sense at all. The cost of the bandwidth and hosting is completely independent of the content; it's the same per gigabyte whether the data being served is music, movies, or Knoppix. In addition, there's no cost to the original host site in any event if the content is shared peer-to-peer over a different network. Maintaining what system? The distribution system? In that case, remove the DRM and allow people to develop other distribution systems that are cheaper. If the bandwidth is really more expensive than most people think, the costs of peer to peer sharing will be high enough to compete with people selling unencumbered music off their websites. If it's as low as most of us think, then for-pay distribution systems won't be a viable business. Evidently ISP's are able to make a profit at $20/month for essentially unlimited service (much of which is P2P traffic). If a typical song is a 3 MB Ogg or MP3, 10 cents would work out to $33/GB, and I don't think we're seeing retail bandwidth charges anything like that. If that is really the case, then a viable model might be to sell subscriptions to the search engine that matched musical tastes up with new music. If it really is the case that people would prefer to pay than to spend the time scouring the net, then there shouldn't really need to be any DRM, since even if people share their music out it's going to cost other people more to search the shared music themselves than to pay the search engine. Artists who aren't well known should be thrilled to receive this kind of exposure, because it would match them up with people really interested in their music (even though they don't know it yet!).(reply to this comment) (link to this comment)
Re: Re: Re: Sorry by Robert Krawitz on Mar 3rd, 2007 @ 3:31pm
Exactly -- ignoring reality. There's also the rather iffy assumption that people will be at their computers and suddenly decide "oh, I'd really like to listen to Street Fightin' Man, but just once, I'm not going to be interested in listening to it again". Most pop music is either something someone's going to want to listen to over and over again without having to keep thinking "do I want to pay for this particular song" or something that's simply too wretched to contemplate having heard in the first place.
For movies this kind of rental model works (at least for now), but movies are much less convenient to download and store, and a lot of people really don't seem to be interested in watching a particular movie more than once. Maybe it would work for at least certain kinds of classical music; I could well see someone deciding that they'd like to listen to Havergal Brian's Gothic symphony once, but more mainstream music is another matter (the 2 CD set for the Gothic costs $30, and yes, I've listened to it exactly once. But a piece that has only ever been performed maybe half a dozen times, and which requires about 1000 musicians, and which doesn't have mass market appeal is going to be somewhat a labor of love to produce, anyway).
The only two ways to put a black market out of business are absolute tyranny (which the record companies seem to favor) or co-opting it. For that mattery, tyranny doesn't seem to work too well, either.
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Imminent collapse of the music industry predicted by Anonymous Coward on Mar 3rd, 2007 @ 4:42pm
I'm still amused by the posts by people like John B. DRM-free digital music has been available for >17 years on CDs. The ability to rip the music and distribute it digitally has been available for > 10 years. Clearly, since the cost of copyright violating distribution is so low, the music industry has already economically collapsed.
Or maybe, as the evidence clearly demonstrates, people are not the criminal sociopaths that the Harvard Business Review explains that corporations are (especially when acting as the economist's idealized rational economic agents).
The myth that "not having to pay" equals "no one will pay" is false. It is repeatedly demonstrated to be false by economists when engaging is socio-/psychological experimentation, much to their near-sighted astonishment. People are not rational economic agents. People do no value money monotonically (much less linearly or logarithmically, as various models predict they should). People do not evaluate risk rationally.
In short, people do not enact the self-destructive behaviour that economic theory predicts. Since the theory doesn't match the facts, the conclusions are bogus. One might as well latch onto the conclusions derived from a theory of the aether or of phlogiston.
Now, in a market occupied by rational economic agents (corporations being a much closer approximation in real life), one can correctly predict the collapse of the market under a free distribution model. So, don't sell free music to corporations. Problem solved.
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it doesn't matter. by Esteban on Mar 3rd, 2007 @ 5:28pm
As long as there are people who buy CD's and rip them to their computers/iPods, there will be illegally distributed copies of all kinds of media floating around because these are the same people who use torrents and other P2P's such as Limewire. I would know. I'm one of them.
Even though the dispute over DRM is important, it is ultimately irrelevant as long as CD's and DVD's are not protected.
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by Alexander on Mar 3rd, 2007 @ 6:05pm
Um. No. It's not at all. A car is scarce. If I take your car, you no longer have it. If I copy your song, you still have it. That's the entire root of this discussion.
So what? Ok, invest two years of your life writing a book. Now I come and copy it, Hey, you still have it!. Be happy. Life's good. Next time your kid comes asking why you can't buy him X or your wife asks for Y, tell them : "I'm an artist - I can't waste my time earning money. I have an inner desire for writing for free".
No matter how you twist it, the fact is that many artists are financially motivated. Yes, there are some who aren't (or at least say so, which is doubtful at best). About quality - Shit or not - well, that's your personal oppinion which cannot be used to prove anything. Your shit is someone else's celestial music, and vice versa. The fact that people go to Britney Spears' concerts and pay for her CDs clearly show that it's not shit for them.
But I propose you a challenge. Let's say I'm as talented as [insert your favourite director here]. No one knows me, and I want to make a movie. Let's assume that we both know 100% for sure people will like this movie. Combined production costs are $10M. Ok, now tell me - what do I do? (specifics, please, no generic reasoning). Where do I get this money from?
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Re: Re: Re: Re: Sorry by Alexander on Mar 3rd, 2007 @ 6:15pm
The only two ways to put a black market out of business are absolute tyranny (which the record companies seem to favor) or co-opting it.
Or to deplete it. No supply = no goods = no black market. If I were an artist and knew that investing 4 months of my life in an album would yield me $1000 because of black market issues, I'd probably think I'd rather work as a plumber and earn $4000. Just as consumers want to maximize the received value per monetary unit, so producers want to maximize the ROI, and time is as much of an investment as money.
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Re: by Robert Krawitz on Mar 3rd, 2007 @ 6:27pm
Knock the production costs down.(reply to this comment) (link to this comment)
Re: Re: by Alexander on Mar 3rd, 2007 @ 6:52pm
Knock the production costs down.
That's a nonanswer. The production costs are what are. Or else, explain to me how do you go to a computer shop and "knock the cost of the computer down". After all computers are needed to make digital effects. Costumes are needed for the actors. Sets and models are needed. Cars are crashed. Feel free to explain to me how do I "knock these costs down". I might as well start applying your method in my own life.
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Refutation by jcp on Mar 3rd, 2007 @ 6:54pm
I refute it thus! ebay.
After a scan of your article, it appears you are not considering the considerable market activity in collectibles. Here is a market based primarily on false scarcity. For an easy example, baseball cards. By creating a false scarcity trading is encouraged at every level. The cards themselves have little inherent value, either economic or entertainment. In fact their origin is as a freebie for buying the gum. The actual economic activity and all of the enjoyment is in the collecting, trading, viewing, etc. of an artificially scarce product.
Now some might say that the original can be labeled or watermarked or somehow identified as special and it's scarcity will remain, but if the market is flooded, even with poor copies, the scarcity is elusive and the after-market of collecting can not survive.
For examples of this business model, I refer you to Topps, Swatch, Hamilton Mint, Lladro, and most modern artists.
-jcp-
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DRM is not a value add, but simply loss protection by Daniel Eran Dilger on Mar 3rd, 2007 @ 7:46pm
"Successful new business models are about creating those non-scarce goods and helping them increase value."
The article presents reasonable ideas, then suddenly jumps upon DRM in a non sequitur that sounds like the Chewbacca Defense.
DRM isn't a value add process, it's loss prevention. Inventory tags on retail goods and the locks on the doors of businesses don't "add value" or create goods or new business models, they protect goods from being taken without payment. DRM does the same.
DRM is like taking the recipes you talk about and making them difficult to remove from your kitchen. Users have to come to your kitchen to buy your finished goods, enabling you to profit from the recipe ideas you created, and encouraging you to develop new recipes to profit further.
In the digital realm, the scarcity that creates value in marketed goods is not the CD or the media files, but the intelligence and artistic talent that created the work. If you allow anyone to take it and copy it, your goods become valueless because of the near infinite supply of unauthorized duplication.
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Not Just DRM by David on Mar 3rd, 2007 @ 8:07pm
What's great about this argument is that it applies not only to DRM, but to intellectual monopoly in general.
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Loss protection for whom? by Anonymous Coward on Mar 3rd, 2007 @ 8:55pm
DRM that retained IP control for the artist is what you describe in your example. In the music world, DRM retains IP control for the truck driver. I.e., DRM supports control by the middle man. In a world where baked goods can be copied effortlessly and transmitted effortlessly, DRM only seems like a good idea for the truck driver; the baker and the consumer both perceive a reduction in value -- the baker because now the consumer can no longer engage in viral marketing by sharing (plenty of examples in both the music and print worlds where online "free as in freedom" access to the back catalog has increased current sales) and the consumer because now the *truck driver* gets to dictate where and when the consumer may eat.
The role of the middleman is increasingly irrelevant. An efficient market would already have eliminated most of the cost burden created by the irrelevant portions of the labels's costs. DRM is an attempt to enshrine this inefficiency. (... and also ensures that no work ever enters the public domain. Why should the DRM expire or be circumventable when the copyright expires?)
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Bankrolling without middelmen by Anonymous Coward on Mar 3rd, 2007 @ 9:14pm
To respond to Alexander...
Method 1) Use the method that was popular from before the Enlighten