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    Jul 2012

    The case for and against DRM

    Edit: In short, just write out the reasons why you are anti-DRM (wall of text ok). Thanks!

    I have been very interested in why DRM exists in the first place, why do publishers persist (in an ever increasing fashion) with DRM, if it is so harmful to their profits and certainly has no effect on getting pirates to purchase a copy.

    There seem to be many people who are anti-DRM, and I hope someone more knowledgeable than me, can argue the case of anti-DRM vs pro-DRM, so that I can finally put this thing to rest. At least, please, argue the case of anti-DRM rationally and robustly.

    Because, for months now, I've found the opposite to be the case. The more I read about it, the more I realise the necessity of this vile thing called DRM, which I, like everyone, despises.

    The argumentation demonstrated on websites like RockPaperShotgun are lacking, with broken logic to justify statistics clutching at straws, so that left me thoroughly unimpressed. I then looked at the academic research and found several articles showing the effectiveness of DRM - investigating levels of effective DRM, and indeed one found a case for when increased piracy is useful due to positive network externatilities (free publicity). Overwhelmingly, the argument was pro-DRM. A brief critical literature review I prepared from this (revised earlier post) is quoted at the end of this post.

    Unsatisfied, like many, with academic reasons on the effectiveness of DRM, I found more practical ones. This one exhibited the most technical insight, and succesfully and robustly examined the reasons why DRM exists:


    Most anti-DRM arguments were thus succesfully argued against.

    If you can, I invite you to (preferably with a wall of text, like me ) to rationally argue the anti-DRM case. Because I too like many, would want to get rid of DRM.

    Lit review:

    There is not much relevant peer-reviewed / academic literature on the matter of PC software DRM and its effects, but there is some. References are lazy, including para-phrasing, and there is a lot of copy-paste, but this should suffice for a forum post.

    The 2005 GSP Report commissioned by the Business Software Alliance estimates that 35% of software is copied. Software copying rates are as high as 92% in Vietnam and 90% in China. In the United States, copying rates are estimated to be 21%. The study concludes that software copying is one of the industry’s worst problems. The study did not include the positive network effects of copying, which Hui and Png (2003) did and showed that industry estimates of lost profits because of copying more than doubled the actual losses in such a case.

    According to Jain(2008), “Many industry analysts see copying as one of the key threats to profitability and innovation. They claim that copying leads to higher prices for legitimate users, lower profits for the firms, reduced new product innovation and is generally harmful to society .” The paper continues to examine the impact of illegal copying of software and other similar intellectual properties on firms’ prices, profits, and quality choices, even when there are no network effects and the market is saturated.

    Controversially, his paper actually finds a case when copying can increase firms’ profits, lead to better quality products and increase social welfare. The assertion is that there is reduced price competition in mature markets with no network externalities, applicable when, for example, markets of entertainment products mature in developing countries with large income disparities (such as China and India). Unfortunately for you, this case is not applicable with Batman’s DRM, and the converse is true with regard to copying’s effect on the firm’s profits, product quality, and social welfare.

    Hill (2007) established the only effective strategic responses copyright holders can adopt to deal with pirating. His approach involved first establishing the causes of copying by prior work done (1) work on moral development (Kohlberg, 1969), (2)equity theory (Adams, 1963; Kabanoff, 1991), and (3) moral intensity (Jones, 1991). Based on the causes and economic consequences, both in a static and dynamic sense, Hill then proceeds to offer the only effective strategic responses that copyright-holders can pursue, of which there are seven. The fourth one is relevant with several games like Anno 2070, which is “offer something extra to consumers who purchase the legal good”. “One solution that can works well for computer software is to offer online services, such as periodic upgrades and security patches, to consumers who register the legal product using a security code that is unique to every legal copy of the product. Since those who purchase pirated copies do not have access to a security code, they cannot get these benefits. This strategy effectively raises the value of the legal product, decreasing the perception of inequity.”

    Note that both in the case of Jain’s paper and Hill’s book, one of the first assumptions is that the software protection is always cracked. Also, the effect of losing consumers due to intrusive DRM is always part of the effect they consider, and is arguably why they researched it, i.e. to look at effective and profitable levels of copyright protection, DRM.

    Another interesting paper on this (Sundararajan, 2004) where an optimal choice of technological deterrence level is found in a market where sellers can influence the degree of piracy by implementing DRM systems. He finds the optimal response in market where the seller can price discriminate, is to offer lower levels of technology-based protection, to the point where the pirated good will always be inferior to the legal product whilst minimising any impact for the legal user.

    The issue is converting a sub-set of those pirates to buy the game, and this does happen (Jain(2008),Hill(2007)), which ends up translating into a significant amount of money because there is a ridiculous number of pirates (one in third, unbelievable). This is even after the fact they consider the cost of implementing and running the DRM, the loss associated with perception of intrusive DRM, any possible product innovation loss and harm to social welfare. Even after considering all these aspects in detail, it is still better to have slightly intrusive DRM according to them. The level of intrusiveness of the DRM is arguably one of the main points and there is certainly a level where it is detrimental to, well everyone. Buying specific DRM hardware, ID checks before playing the game via creditcards, passports, fingerprinting or other biometric scans, regional locks etc. are examples. Most games DRM is fairly non-intrusive (having internet, running out activations in an unlikely event), and ends up being a win-win situation for all on the whole (apart from criminals).

    I think my main issue is - if you say this level of DRM is so intrusive that it harms the sales to such an extent as to not be worthwhile, please show me some evidence. Otherwise, I will take the peer-reviewed research. And my deductive skills, which say that no publisher would continue to repeatedly punish their profits, year after year, if this DRM was indeed harming their profits. And make no mistake - companies operate for profits, and DRM would be the first thing to go if it was so detrimental to them.

    Adams, J. S. 1963. Toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67:422–436.

    Hill,C. 2007, Digital piracy: Causes, consequences,and strategic responses’, Asia Pacific J Manage (2007) 24:9–25,DOI 10.1007/s10490-006-9025-0

    Hui, K., I. Png. 2003. Piracy and the legitimate demand for recorded
    music. Contributions Econom. Analysis Policy 2(1).

    Jones, T. M. 1991. Ethical decision making by individuals in organizations: An issue contingent model.Academy of Management Review, 16: 366–395.

    Jain,S., Digital Piracy: A Competitive Analysis,Marketing Science, Vol. 27, No. 4, July–August 2008, pp. 610–626
    issn 0732-2399 _ eissn 1526-548X _ 08 _ 2704 _ 0610

    Kabanoff, B. 1991. Equity, equality, power, and conflict. Academy of Management Review, 16: 416–441.

    Kohlberg, L. 1969. Stage and sequence: The cognitive development approach to socialization. In Growling,D. (Ed.). Handbook of Socialization Theory and Research. New York: Rand McNally.

    Sundararajan, 2004: Managing Digital Piracy: Pricing and Prote
    Edit: A similar thread existed on Steam, but only got a few replies due to the forum rules of discussing piracy. Hence, please feel free to express your views here, thanks.
    Last edited by rojimboo; 24-07-2012 at 04:51 PM.

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