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DRM and the Changing Nature of Content

February 7, 2007

One nice thing about Steve Jobs posting on Thoughts on Music in which he states that he would like to see the end of digital rights management is the much more interesting postings by others on the subject. The two that have inspired me to write this entry are Mark Cuban’s thoughts on what the music companies should do, and Randy Picker’s more general thoughts on how this relates to business models.

First, Randy states that:

Jobs must recognize that the music industry is in the midst of a format transition. Music has done that before: moving from wax cylinders to LPs to CDs and now online. The music industry wants this transition to include encryption. They are stuck selling unencrypted CDs—SonyBMG’s effort to do otherwise was a smashing failure—because of the installed base of CD players, but they don’t face these backwards compatibility restrictions for online music, hence the difference in approach on encryption.

That is certainly true, but this transition is significantly different than others in that with all of the constraints on the new format (e.g. DRM, pricing, involving a PC, lower fidelity) there is no real advantage to the new format over CDs. This is why so many people (myself included) continue to buy and rip CDs rather than buy DRM’d music.

This is really more than just a format change and a more fundamental change in form. Personally consumed entertainment (as distinct from live experiences, etc.) is changing from a physical good to an informational good. (This is also happening with other things to some extent as well– newspapers for example.) The informational good of pure digital media (i.e. computer files) is fundamentally different from the physical good (CDs and DVDs) in that it has the characteristics of being easily duplicated at very little marginal cost.

DRM is an attempt to turn back the clock and continue to infuse pure digital media with some of the aspects of physical goods in an attempt to preserve an existing business model. This is likely to be futile. DRM has proven in practice to be very difficult to implement in a way that is both convenient and truly secure. In practice it has been both inconvenient and often compromised.

For its own sake as well as that of its customers the music industry needs to try something different. Mark Cuban has some interesting ideas. I’m sure there are others.

What I find puzzling is that none of the players in this competitive industry is trying these other ideas. That fact suggests that my analysis is probably incorrect, but if that is the case I would be interested in knowing where I’m off base.

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