Friday, November 30, 2007

A Financial Perspective on DRM

At Kuro5hin: A Financial Perspective on DRM

" I noted yesterday that there seems to be some media fanfare surrounding Amazon's launch of a digital book tablet. It occurred to me that the markets surrounding media such as books, music and movies bear more than a passing resemblance to financial markets, and as such, perhaps they were amenable to a similar method of analysis. Being the owner of a sizable collection of paper books, this led me to consider the drawbacks one faces when Digital Rights Management restrictions are put in place...

when one purchases media encumbered by ... DRM schemes, one is taking on undiversified credit risk with an indefinitely long time horizon -- that is, you're counting on Microsoft or Apple not going out of business any time in your life and making all of your media instantly unreadable. Worse yet, unlike in the credit market, there are no such strong and well-defined legal protections to offer you recourse in the event that the company defaults -- they may choose to end (or more likely, "upgrade") the service at any time and render your library of purchases useless...

While books and music are almost never bought as investments with the expectation of making a profit, in the financial markets, investors rationally demand a high return premium for taking on such extreme risk. Asking consumers to take on such risks with no prospect of them materially benefiting in return is an incredibly unreasonable proposition and, to me, is the chief mechanism standing in the way of widespread adoption. While DRM schemes of this nature may flourish for now, it is only a matter of time before consumers wise up, the markets become more efficient, and people demand a fairer deal from large media companies. Publishers may not like it, but attaining the same characteristics for their digital products as they have for their physical products is the best hope they have for slimming down their distribution costs and stemming the tide of digital piracy."

Interesting perspective.

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