Digital Rights Management (DRM) systems are used on things like ebook and movie files to make them more difficult to share. During the Napster era the major record labels got on board with DRMs in a big way hoping that they could reduce piracy by locking their music files down. But a new study shows what we've all thought for a long time. It doesn't help. And in fact it DRMs hurt sales.
A new paper published by Laurina Zhang at the University of Toronto shows that revenues from digital music increase 10 percent when labels drop DRMs. The revenue increase can be as high as 30 percent for albums that sell low and slow over a long period, and there is no difference for the highest-selling albums.
So even in the study's worst case finding with the most popular albums, dropping DRMs doesn't hurt revenue. Zhang took data on 5,864 albums from 634 artists and then compared sales before and after DRM, while controlling for things like release dates, genre and natural sale fluctuation.
The research was possible because all four major labels have scenarios where they used DRM and then eventually dropped it on the same albums. Zhang says:
I exploit a natural experiment where the four major record companies – EMI, Sony, Universal, and Warner – remove DRM on their catalogue of music at different times to examine whether relaxing an album's sharing restrictions impacts the level and distribution of sales.
The longer a product's "tail," meaning the longer it sells consistent numbers, the more removing DRM increases revenue. This may be because less popular music benefits much more markedly from individual sharing compared to mainstream hits. Time to swap some tunes. [TorrentFreak via TechMeme]