Friday, March 24, 2006

Media business beyond DRM

Blair Westlake alerted me to Bill Thompson’s column How to right the copyright wrongs, which might represent a groundswell in opinion around copyright. Thompson argues that DRM technology is doomed to fail, and he decries “[... the] belief that rigorous enforcement of technological restrictions, backed up by the ruthless application of draconian laws that allow the replacement of copyright with contract law and criminalise activities which used to be considered legal - or acceptable even when not clearly legal - will enhance the market, keep customers coming back for more and ensure the future success of the "content industries".

He goes on, “My opposition to DRM is not an opposition to copyright, or a claim that copyright is dead. But current attempts to use technology to enforce restrictions on use, restrictions that often go beyond those copyright law would demand, are unacceptable.”

As are columnists’ wont and privilege, he does not go beyond outrage to indicate workable alternatives.

Three recent experiences of mine point towards a solution:

  • Altruism. The content industry (like many businesses) is working on a flawed model of human nature. I’ve just come from retreat center which is entirely run by volunteers; room, board and teaching are all provided free. Human motivations are like the wings of a bird: selfishness and altruism. Both are needed to make our way through life. Neoclassical economics assumes just selfishness, and a decade of behavioral economics has shown how poorly such models predict what humans actually do. Some on the Left would have us believe, on the other hand, that All We Need is Love; that’s incorrect, too.

  • Anticipation. There was an article in the Week-end WSJ [1] about the applications of positive psychology (a relatively new field that studies what makes people happy) to business. Brian Knutson, a Stanford professor of psychology and neuroscience, argues that “anticipation is totally underestimated.” He studied the brain activity of people playing video games in which the anticipation of winning, and actually taking possession of ones loot, it were separate [2].

  • Analog. When I asked Matt Corwine how he made a living – he composes techno music, plays at dance parties, licenses audio clips to Japanese ad companies, etc. – he replied, “I sell everything that isn’t digital.” Another of his memorable quotes was, “Smart people treat recordings as a marketing expense.” Large music companies are beginning to tout themselves to bands as merchandizers: the CDs, yes, but also the tour and the t-shirts and the ring-tones.

Here are some implications that point towards a viable non-DRM media business model:

  • Assume Altruism. Ask people nicely to give you money in return for your work, and may be pleasantly surprised by their response – especially if you’re a neoclassical economist. Behavioral economics is now so established that companies can easily find a reputable academic to produce some numbers to keep their investors on-side.

  • Advertise into Anticipation. Product placement aside, it’s hard to make people watch ads while they’re in the middle of a media experience. Accept this, and make money from the moments before the media is consumed. (There may also be an after-glow which is exploitable.)

  • The Analog Halo. Money can be made where there is scarcity, and digital media are intrinsically non-scarce because they can be so easily copied. Hence, make money everywhere else. The whole premise of the “analog hole” – that revenues will leak out of non-DRM protected analog media – is wrong; in terms of business plan, there’s a Digital Hole and an Analog Halo.


[1] Jeffrey Zaslow, Happiness Inc., Wall Street Journal March 18-19, 2006, p. P1. Subscription required.

[2] See eg Brian Knutson and Richard Peterson, Neurally reconstructing expected utility, Games and Economic Behavior 52, 305-315