Music Downloads and the Flip Side of Digital Rights Management Protection

by Volker Weber

Via Ars Technica, an interesting paper:

In certain instances, we find that eliminating DRM restrictions can lead to an increase in sales of legal downloads, a decrease in sales of traditional CDs, and a decrease in piracy. This is in stark contrast to the view that removing DRM will unconditionally increase the level of piracy. ... Our analysis also generates several additional counterintuitive results. By removing DRM and making illegal copying easier, the record label can benefit from the intensified competition between pirated music and the download retailer. Furthermore, this suggests that DRM may protect the "traditional businesses," that is, retailers of CDs, more than they protect the download retailer. Finally, we also find that under certain conditions, piracy and label profits can both increase. It is important to note that this positive relationship between piracy and label profits occurs without any network effects in the model. That is, piracy does not contribute directly to consumer utility; instead, it has a positive effect based solely on how it affects prices of the legal products in the market.

Repeat after me: DRM is bad for the customer.

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