It's not news that consumers hate DRM, especially the kind that keeps Little Johnny from ripping that Velvet Revolver disc to his iPod on Christmas morning. What is interesting, though, is how little the major record labels care. As reported a few weeks back, Thomas Hesse, President of Sony BMG's global digital business division, told NPR that consumers didn't understand his company's DRM... and therefore didn't care.
Hesse had reason to feel this way; DRM has had little effect on sales so far. From a business perspective, the Velvet Revolver disc, for example, was a smashing success. It may have annoyed Little Johnny, but it sold by the truckload. Their album Contraband shot to the top of the charts, becoming the first disc with DRM to hold the number one sales spot in the US. The lesson to RIAA members was simple: everyone loves DRM.
Not anymore. A recent story in the E-Commerce Times suggests that the labels are now losing customers to their aggressive DRM tactics. The article suggests that in Canada, at least, customers have started to shy away from those "copy-controlled" logos. Even some in the music business see the current strategy as short-sighted. Terri McBride, president of Canadian label Nettwerk, argues that
"The average consumer who's not tech-savvy is going to buy the CD, thinking that they can load it onto their iPod ... They're going to be royally pissed off."
McBride then shows himself a keen student of business by adding,
"Why do you want to piss off the people who buy?"
Indeed.
Although the E-Commerce Times piece is anecdotal, their conclusions are borne out in the recent "rootkit" debacle that Hesse insisted did not matter to people. A Businessweek article suggests otherwise, documenting how Van Zant's Get Right with the Man fell in Amazon's rankings from 887 to 1392 to 25,802 to "unavailable" in less than three weeks after the rootkit was revealed. Consumers are waking up, and they don't like what they see.
The most interesting thing about the DRM war currently underway is that it might not even need to be fought. The industry's tactics are not designed to restrict commerical piracy, but file-swapping. However, a 2004 Harvard/UNC study found that the music industry's Chicken Little claims of apocalyptic destruction were, ahem, overstated. From the abstract:
"Downloads have an effect on sales which is statistically indistinguishable from zero."
A more recent study from Harvard economics student David Blackburn complicates this rosy scenario somewhat. Blackburn argues that file-swapping does affect CD buying--but not equally. The most popular artists see a loss in sales, but those who are more obscure actually get a boost from free distribution over P2P networks. This is bad news for Velvet Revolver, but excellent news for Dolorean.
The music industry needs to adjust to this new reality, because it's here to stay. The BBC reports that a whole generation of Europeans no longer see music as something that ought to be paid for. Jupiter analyst Mark Mulligan warns that children are being raised on a "limitless diet of free and disposable music." He sees this, unsurprisingly, as a Bad Thing (tm), but only time will tell if file-swapping music lovers are shooting themselves in the foot by putting the labels out of business, or whether they are making possible the growth of a new, artist-driven economy where even niche bands can earn a living.
http://arstechnica.com/news.ars/post/20051128-5635.html
