Dropping DRM A Good Strategy

I read with glee Ed Christman's article  at Billboard.biz on the state of DRM. (DRM stands for digital rights management, the locks and limitations placed on digital media. In this case, I'm talking about purchased music downloads.) EMI was the first to drop DRM. Universal Music Group is in the midst of a test phase, and Sony BMG is rumored to be ready to ditch DRM as well. Between those three companies, that's about 80% of all music purchases in the U.S. (a bit less when you take out physical sales, though).

Last month I spoke on a panel on DRM at the Americana Music Conference. My main point was that DRM was standing in the way of growth in digital sales and was a stipulation that would discourage the kinds of entrepreneurs that will lead music into the next digital age. There is no doubt that protected Windows Media, the typical format of a non-iTunes download, is a non-starter with virtually all consumers. Since Apple is not going to license its FairPlay technology to others, the best option for the industry is to drop DRM. New ideas and creative services will flourish where before they were stymied by the unfortunate fact that nobody wants a DRM file unless it comes from iTunes.

Record labels are good at administering catalogs and copyrights, discovering talents and marketing music. They are not good at offering services to consumers. So, it would be best to encourage a new generation of digital retailers and service providers, would it not? That is impossible with DRM. If labels stick with DRM, they are chaining themselves to years of acrimonious relations with the market monopolist, iTunes. Label execs do not wants that.

For DRM to be of value, the benefits of dropping DRM would have to be less than the dollar impact of the increase in piracy. That's assuming there will be an increase in piracy, which is anybody's guess. OK, so there will probably be a tiny increase in piracy. (But not a great deal since songs ripped from CDs are unprotected and songs download from file-sharing networks are unprotected.) The future gains, though, that will come from dropping DRM will undoubtedly be far larger than whatever small downside will exist. And that's the basis of the move away from DRM: Take the gains from new entrepreneurship and absorb the smaller loss from piracy. Introduce a new era of cross-marketing and put up with the chance some of those unprotected tracks might be swapped from one person to another. At the end of the day, it's a net gain. That's what matters. Only a seriously risk-averse and foolish industry would pass that up.