Dennis D. McDonald ( consults from Alexandria Virginia. His services include writing & research, proposal development, and project management.

Followup to "Is DRM a 'Tax' on the Intellectual Property Supply Chain?"

Followup to "Is DRM a 'Tax' on the Intellectual Property Supply Chain?"

By Dennis D. McDonald

On May 2, 2007 I published Is DRM a “Tax” on the Intellectual Property Supply Chain? where I compared DRM (Digital Rights Management) to a “tax.”

I’ve received several comments and emails with different perspectives and I wanted to follow up.

“Tax” may not be the appropriate word to use. A tax is usually imposed by a governmental authority. The costs to implement and support DRM are (primarily) non-governmental in nature.

Some might argue that industry efforts to convince the U.S. Congress to pass measures such as the DMCA (Digital Milleniun Copyright Act), which allows for de-legalization of behaviors that may result in the removal or bypassing of DRM-related technologies, effectively enlists the power of the government in enforcing a restricted view of intellectual property rights. Current efforts to criminalize intent to bypass copyright may fall into the same industry-favoring category.

This is not the same as a “tax” and may be more appropriately compared to any legislative measures promoted by private organizations to protect their financial interests. Such behavior is certainly not unique to the area of intellectual property rights and might be thought of as just another example of garden-variety special-interest legislation.

How about “Toll”? Tolls are frequently imposed on usage of some resources (e.g., roadways) in relation to the usage of those resources. The reason of the imposition can be payment for construction and maintenance of the resource (when general funds are not available) or to control access to the resource (e.g., as a way to reduce demand by imposing a cost related barriers to entry). Either way, failure to pay the toll usually leads to restricted access to the resource in question and to thepossible substitution of another resource (or route) by the public for accomplishing the same thing.

Related to the toll analogy is that, in the case of DRM, the DMCA is a legislative means to prevent substitution to play back, for example, DRM’d high definition DVD’s on non-approved devices. This situation is similar to a local government making it illegal to drive the back roads in order to avoid paying a highway toll.

Music and Movie DRM Are Not The Same. One commenter told me it was wrong to lump movie and music DRM together. He asked, how can you compare a movie that cost $200 million to produce with a single audio track that can be downloaded for 99 cents?

I’ll admit that the economics of these two media types are very different,  but a closer look will make such hard and fast distinctions problematic:

  • Not all movies cost $200 million to produce.
  • Thanks to the likes of YouTube we see that there is demand for movie “snippets” that might be compared to individual“record tracks.”
  • Availability of low cost digital production media has substantially reduced the barriers to entry for those interested in producing sophisticated multimedia products.
  • Despite the vastly different production and distribution costs of movies and audio CD’s, it is interesting howclose the average street price of an audio CD is to the average street price of a movie DVD.

Conclusions. I agree that the term “tax” may be inappropriate.  It may also be logical to believe that different types of media require different types of protection.

I’m still left with my originally stated concern, that the overall costs of developing, implementing, and maintaining technology based DRM may not be worth the effort.

At some point it will no longer make economic or market sense to continue shifting the cost of developing and maintaining DRM technologies “down the value chain” to be included in the price paid by legitimate consumers while pirates continue to avoid legitimate payments. Add to this the cost of an artificially complex physical distribution system that can always be bypassed by determined pirates and which has the potential for a catastrophic failure (remember the Sony “rootkit” fiasco?). Also consider the need to continually lobbyand influence legislative bodies to create increasingly complex legal barriers that inevitable impact ordinary citizens, and you begin to understand why Apple, EMI, and Amazon have decided it will make economic sense to sell non-DRM’d music.


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