Why Record Companies Should Learn to Stop Worrying and Love the Internet

Something amazing happened over the past twenty five years: all media has gone digital. There are many implications of this revolution but one of the most impotant ones is an economic effect: the cost of copying digital media is, effectively, zero. In the analog era, when our music was stored as bumpy grooves on a vinyl disk, unless you owned a custom record press in your basement, copying a record was no mean feat. Same story with copying a book: turn page, reposition book, press copy button, repeat a few hundred times – no fun for anyone. Thus, in the analog age copyrights were self-enforcing.

Digitization has changed all that. You can now copy digital books, music and movies with the click of a button on your computer. Copyrights are no longer self-enforcing and media companies are spending large sums of money to protect and perpetuate their business models (Google Disgusted with Music Labels, Music Industry Will Force Licenses on Amazon Cloud Player – Or Else).

But here’s an interesting question: why, in the digital age, do I continue paying for my music? In the past ten years I’ve purchased more MP3 music via the internet than analog music in any previous decade of my life. I could have borrowed those CDs from a friend or from the library and copied them for free. Why do I bother paying at all?

Though I like to think it might have something to do with ethics, there’s a better explanation: a transaction that used to involve getting in my car, driving to a record store, and physically handing someone my hard-earned cash has turned into an impulse purchase. I hear something that interests me, I click on a button and, Presto!, I own it. The very same technology that makes it easy for me to steal music also makes it incredibly easy for me to buy music.

Tim O’Reilly is a media entrepreneur who understands the digital world about as well as anyone. In this excellent short interview with Forbes, he shares his insights on digital rights management. This excerpt is particularly noteworthy:

Jon Bruner: On all your titles you’ve dropped digital-rights management (DRM), which limits file sharing and copying. Aren’t you worried about piracy?

Tim O’Reilly: No. And so what? Let’s say my goal is to sell 10,000 copies of something. And let’s say that if by putting DRM in it I sell 10,000 copies and I make my money, and if by having no DRM 100,000 copies go into circulation and I still sell 10,000 copies. Which of those is the better outcome? I think having 100,000 in circulation and selling 10,000 is way better than having just the 10,000 that are paid for and nobody else benefits.

People who don’t pay you generally wouldn’t have paid you anyway. We’re delighted when people who can’t afford our books don’t pay us for them, if they go out and do something useful with that information.

I think having faith in that basic logic of the market is important. Besides, DRM interferes with the user experience. It makes it much harder to have people adopt your product.

Times have changed. The companies that succeed will be those, like O’Reilly’s, that adapt to the digital world and figure out how to get great products into peoples’ hands quickly, conveniently and at a competitive price. Right now the record companies seem to be spending a lot of their time and energy trying to figure out how to put the genie back into the bottle. Good luck with that.

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