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

By Dennis D. McDonald

Like it or not, the current controversy over the publication by Digg of a decryption key for unlocking DRM-equipped high definition DVDs might give some companies pause about how to handle threatening "take-down notices" in the event an employee blog or wiki is used to publish a protected or controversial work. This eventuality is just one of the things companies will need to consider when developing a social media risk management strategy.

I won't get into my views on DRM in detail here. It's fantasy to think that hardware and software based DRM techniques will not be bypassed at some point in time by sophisticated users, even as these techniques provide "speedbumps" for less sophisticated users and annoyances to those who have no interest in piracy.

Maybe we should think of DRM as a "tax" on the intellectual property supply chain. Everyone pays in some way for DRM -- publishers lose anyway from sophisticated piracy that cannot be prevented by any type of DRM, customers lose from added expense and product complexity, manufacturers have to maintain more complex infrastructures -- and the legal fees for everyone continue to mount up.

It's not a happy situation and has been referred to by more than one commentator as a game of "whack-a-mole."

If history is any guide, some kind of accommodation will be worked out eventually but only after much legal blood is spilled. I'm learning a lot about such situations from reading the book Playback, (c) 2003 by Mark Coleman and published by Da Capo Press. Coleman discusses the history of Edison's cylinder recordings, format battles over recording technologies, RCA vs. Columbia over LP technology, organized opposition by musicians over radio broadcast of records, and other events leading up to and including the Napster decision. The historic details in this book are oddly familiar as new technologies are introduced, they are battled by the status quo, and then -- surprise surprise -- businesses finally figure out that they can make money after all with creative thinking.

• A follow-up to this post is Followup to "Is DRM a 'Tax' on the Intellectual Property Supply Chain?"

Comments

[Carey Lening]

Dennis:

When you pay a tax, you usually still maintain full access and rights in what is being taxed. As an example, when you pay property taxes, its not as if your rights in your house are curtailed.

Instead, I think of DRM as a poor, rudimentary lock. Like a lock, DRM keeps out any uses that the original 'owner' wants to curtail. As in a house, it keeps visitors out of locked areas, or all people out of the house. In the case of IP, it keeps users from utilizing certain aspects of a work (e.g., copying and distribution, or even legitimate fair uses). And just like a lock, its rudimentary nature leaves it open for the picking.

That the manufacturers and early adopters of these kludgy locks suffer market effects from what I consider a rudimentary and under-developed technology, is what happens. I don't consider that a tax; I consider it a market correction ;)

[Dennis D. McDonald]

A friend has pointed out to me that the "tax" allusion in the above blog post might not be apt -- maybe a more appropriate term would be "toll."

Also, the economics (and technologies) will differ by whether we are talking about music or movies.

[Dennis McDonald]

Friends have suggested it may be inappropriate to compare DRM used in DVD's with DRM used in music CD's. One said, "Movie producers are willing to spend whatever it takes to protect movies." Another said, "You can't compare protecting music tracks to $200 million movies."

[Daniel Sweet]

I think we should ban scanners and copy machines, too. Or, at least, assign a "fee" to be paid from the sale of both of those to the authors who are undoubtedly hurt by the copying of their works.

I will not defend the folks that copy and distribute movies, music, books, or other copyrighted works. They are breaking the law and stealing (from authors / creators as well as the "big media complex"). They should be prosecuted.

Why, then, is it always me, the guy who won't take free movies or music from the Internet, that has to pay the price for the lawbreakers?

Dan

[Dennis D. McDonald]

Dan, you are the one paying the "tax" for DRM and its associated costs, just as you pay a percentage of a department story purchase price to cover shoplifting losses and the costs associated with managing processes associated with shoplifting prevention – even though you are not a shoplifter.

One question is, are these “prevention” efforts really cost effective, or are they overburdening the system (the "supply chain") with mechanisms that are inherently hackable.

I don't know the answer to that last question but I do know that some smart people are thinking about it.