Measuring the Negative Impact of Digital Rights Management (DRM)

Still think DRM is good for IP owners? Have you bought into all the fear, uncertainty and doubt to believe DRM protects sales by keeping freeloaders away from your content?

If so, I've got a report you need to read. It's one that came out late last year but didn't get a lot of publicity.

The report I'm talking about is by Laurina Zhang and it's called Intellectual Property Strategy and the Long Tail: Evidence from the Recorded Music Industry. Don't let that title discourage you. Yes, the paper has a very scientific, academic feel to it, but it contains some very important, quantifiable insights about DRM from the music industry.

Here's the key quote from Laurina's executive summary:

I find that removing DRM increases digital music sales by 10%. However, relaxing sharing restrictions does not impact all albums equally; it increases the sales of lower-selling albums (i.e., the "long tail") significantly (30%) but does not benefit top-selling albums.

So if you're using DRM on all your content this report suggests that your total sales are about 10% less than they could be. How could that not make you want to re-think your DRM strategy?

As Laurina says though, DRM's impact varies and depends on whether you're talking about a top-selling product or a weaker-selling one. What she's referring to is the cost of discovery. Best-selling products don't rely on discovery as much as the weaker-selling, unknown products, do. In Laurina's eyes, it's all about the effect sharing has on search costs. As she notes:

I interpret increased sharing as lowering search costs, and as such, my results are consistent with theory that shows lowering search costs can facilitate discovery of niche products in the long tail.

She also points out that, "DRM's sharing restrictions likely raise search costs and hinder product discovery, which may decrease sales."

That's pretty hard to argue with. Some readers might agree that going DRM-free on long-tail products might be OK, but what impact would this have on bestsellers? Here's what Laurina has to say:

I find that relaxing sharing restrictions disproportionately increases sales of albums in the long tail (i.e., lower-selling albums) significantly (30%) but does not benefit top-selling albums.

And elsewhere in the paper she points out:

I find that the marginal impact of DRM removal on the top-selling albums is negative and insignificant, which suggest that DRM removal does not appear to benefit top-selling albums.

Does that mean that in order to protect your bestsellers you need to continue biting the bullet (and frustrating your customers) by using DRM across the board? Absolutely not.

If you're still worried about the possible negative impact of DRM removal from your bestsellers, why not start by removing DRM from all your other products? Measure the results and see if they match the ones in this report.

You'll likely become a hero if you recommend a DRM-removal test that ends up increasing sales by 10%. Your customers will thank you too.