Monday, February 12, 2007

Why DRM-less Music Will Be Cheaper

The Economist is skeptical that in a world without DRM, the price per song will decrease.
This prompts Wired's blog to speculate that music prices could fall if DRM were abolished, as consumers would no longer have to subsidise expensive DRM systems that will only grow more complicated over time. That strikes me as extremely unlikely. Even if Apple employs a huge, lavishly funded DRM programming group, how much could it be costing? A few tens of millions? According to CNet, in the first nine months of 2006, iTunes sold 695 million songs at $0.99 a pop. The DRM problem cannot be enough to knock more than a few cents a song off the price . . . unnoticeable even to heavy iPod users like me.
The cost of DRM free music will drop, not because the marginal costs have declined, but because it removes a barrier to entry.

New entrants to the market will have a difficult time maintaining DRM systems and convincing the Big Four that there music is piracy free. Once they no longer have to maintain DRM, the Big Four don't have many reasons to prevent every Dick, Jane and Harry from selling music online.

Since the marginal cost of an MP3 is very close to zero the expansion of competition can really only drive the costs down.


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