Music Downloads and the Flip Side of Digital Rights Manageme(4)

4

Figure1

EquilibriumDemandforLegalandIllegalVersions

Vernik,Purohit,andDesai:MusicDownloadsandtheFlipSideofDRM

MarketingScience,ArticlesinAdvance,pp.1–17,©2011INFORMS

ers.The lemaynotbeermissions@.

SegmentHDownload retailer,pirated sources

Traditionalretailer

Download retailer,pirated sources

Traditionalretailer

bpircotsbyconsumersucsiloforopteffortthewhoalsotendtohavestrongerpreferencesesilbhwhereofdownloadablei∈a consumerformat.Thus,thetotalpiratingH L ,isequallocatedtoeatpointxi=eTx+ei

onsegmenti,

M.

talig2.2.3.RestrictionsImposedbyDigitalRightsnvaiadManagement.ThecurrentstateofDRMtechnologiesreadgisaercopy,thatmssnrestrictortheyconvertworkbythecontrollingmusic le.howInthisusersmanner,canaccess,theyioiharderhowtheproductcanbeused,thusmakingithtscieHowever,topirateandincreasingthecostofstealing.huwqbuyersWewhothesehaverestrictionsnointentionsalsoinconveniencelegal,ynnoaisrdntwoWhenmodelanbothalbumthesehaseffectsofengaginginpiracy.DRMbelow.

restrictions,thereareveessiteswaysecensDRMorpeer-to-peerforittoshownetworks:uponthepiratedpiratesmusiccanbreakweb-avaethemdlAPaavailablerestrictionsonorthecopyInternet. lesfromTheamainCDoptionandmakeforne.toconsumeritissablesearcharoundwhoforwantsit.However,topiratewhenthealbumlegallywillavail-beelc’sruploadeddownloadablemusicisDRM-free,itcanalsobeitorAhpeople,directlytothepiratednetworksbymoretusaierthusincreasingthesupplyandmakingiteas-ihtethroughforconsumersohttgeststechnologiesto ndanddownloadpiratedmusictghnwhenthatgiidrDRMDRMthesuchasBitTorrent.4Thissug-restrictionstechnicalarecostofpiratingcandecreaseyulpcconsumersrestrictions,onictions,isethetotalcostremoved.ofSpeci cally,withi=i

piracyforsegmenti

se,dti cientitloshbetechnical isdenoteseiU= eeTx+eTx+eiM,andwithoutDRMrestric-M(where0< ≤1).Thecoef-SwabsenceofpartthedegreetowhichthesearchorDRM.of5

thepiratingeffortdecreasesintheMrRehOtDRMAsnotedinconvenienceearlier,thelegaltechnologicalbuyersandthusconstraintsreducethe

ofFoNyIna4

:ThewaitingtimeassociatedwithusingtheBitTorrentprotocolthngodecreaseswhenthereareagreaternumberofnodesbecausetheiroveralldownloadspeedincreases.

ydpet5

AslongasthereisatleastoneserviceontheInternetthatosCopprovidesaccesstopiratedmusic,eliminatingDRMprotectionmightnotdecreaseconsumers’costofpiratingbyasigni cantamount.Indeed,someindustryobserversarguethatconsumerswhotrulywanttodownloadmusicillegallyarenotaffectedbyDRMrestrictions.

baseuct.musicForutilityexample,thatconsumersDRMrestrictionscanderivecanfromlimittheusageprod-ofsotospeci cdevicesand/oroperatingsystems,contentconsumerspreferencesiftheirrisksystemlosingcrashesaccessortolegallypurchasedmusicpresenceinthechange.downloadableThus,consumers’theirabilitymusictoplayerenjoywithorabsenceofDRMformatrestrictions.isaffectedAsabytheandaDRM-freeproduct,consumersgetautilityresult,of ,utilitywithshowtion.inof aDRM-restrictedproduct,theygetalowerR= ,where ≥0.WesubsequentlyidealInterestingly,§5thatourwithoutDRMloweringsolution—itwhenresultsthebaseincreases arerobusttothisassump- =0,thenutilityforthethe rmhasthelegalcostofbuyers.stealing2.2.4.Consumers’Options.Insummary,con-sumers’fromeachoptionsforobtainingmusicandtheirutilitiesprice1.Buyptheoptionalbumareasinfollows:

thetraditionalformatat

T,andobtaintheutilityUTB

= utility2.BuyinUthet 1 x pT.RDB

downloadablealbumandobtainthe

x = thetheR tx pRDiftheproductisavailableinutilityDRM-restrictedUUDB

versionatpricep= tx pRD,orobtain

UDiftheproductisavailableand3.theStealDRM-freetheproduct(unrestricted)versionatpricepUD.theobtaintheutilityUinRDS

thedownloadableformat

= tx ei,i= H L DRMlegallyrestrictionsavailableorthedownloadableutilityUUDS

musiccomeswith

if= tx eiUlegallyiftheDRMrestrictions.

availabledownloadablemusiccomeswithout2.3.Firms

bel,aandistributionInternetretailer,channelandmadeatraditionalupofaasimonioussimpli cationConsideringdifferentiatedstructurewemakeonlyoneretailerofeachtypeisstillallowsfortractability,ustocapturebutthis(1)par-theandtype(2)thepositivecompetitionpro tbetweenmarginstheenjoyedtwoformatsallowofnetintraformatretailer.In§5,werelaxthisassumptionbyeachandtional(orretailerdownload)competition.asretailerretailerTas.TheretailerWereferrecordDandtotheInter-labelthesellstradi-an