Chris Privett
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125
Tel +1.919.660.8090
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Downloads on the Down Low: How the Recording Industry Can Reduce Music Piracy
October 07, 2011
DURHAM, N.C. -- “Where there is a sea, there are pirates,” according to an ancient Greek proverb. In the 21st century, a similar sense of inevitability pervades the recording industry, which has waged war against a thoroughly modern type of pirate by encoding digital music files with Digital Rights Management (DRM) software that aims to prevent unauthorized downloading and copying.
Despite such measures as restricting users from installing music on more than five authorized computers or burning a song more than seven times, the problem of illegal music downloads continues unabated. The NPD Group, a music industry research firm, estimates that only 37 percent of all music acquired by Americans in 2009 was paid for. But could DRM restrictions on music actually be making the piracy problem worse?
New research from Duke and Rice universities bucks conventional wisdom and finds eliminating DRM restrictions could lead to an increase in sales of legal downloads and a decrease in piracy. The findings are included in the Nov./Dec. 2011 issue of the journal Marketing Science.
“Our conclusions are in stark contrast to the prevailing view that removing DRM will unconditionally increase the level of piracy,” said Preyas Desai, professor of marketing at Duke’s Fuqua School of Business. “Not only does our research show download piracy might decrease if record companies allow drop DRM restrictions, we also found that a decrease in piracy does not automatically mean higher profits for record companies or copyright holders.”
One key to understanding the illegal download puzzle is the inherent competition between traditional CDs and digital downloads. “DRM-free music is a stronger competitor for traditional CDs, and this competition can force the prices of CDs lower,” said Devavrat Purohit, professor of marketing at Fuqua. “The competition from lower prices on CDs would in turn lower prices on legal downloads. Lower prices for both traditional CDs and legal downloads would move many consumers from stealing music to purchasing it legally. Thus, removing DRM can lower the level of piracy.”
By removing DRM and making illegal copying easier, record labels could benefit from the intensified competition between pirated music and download retailers, said Dinah Vernik, assistant professor of marketing at Rice’s Jesse H. Jones Graduate School of Business.
“The conventional line of thinking misses the impact of DRM technologies on the nature of competition in the legal music market, which in turn affects consumers’ proclivity to steal,” Vernik said. “The recording industry acknowledges that consumers bear the additional costs of imposing DRM restrictions on digital music, which lowers the overall satisfaction of those who purchase music downloads legally. This dissatisfaction with sometimes onerous DRM restrictions could nudge consumers toward piracy.”
Though the research models were developed with the music industry as a principal backdrop, the findings can be readily extended to other information goods such as movies and books that can be digitized and distributed over the Internet, said the researchers.
For a copy of the research report, contact Chris Privett at clp15@duke.edu.
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