Furthering the DRM Debate

I received a very timely response to my previous post from Christian Olsson this time around, so I'll address his points again in a new post. Again, Olsson in italics:

You’re right, there does not seem to be much academic research and perhaps that’s why companies have resorted to what you describe as ‘commercial research.’ The Goizueta Business School, Emory University, Atlanta GA academic research report “An Empirical Examination of Global Software Piracy: Implications for Pricing and Public Policy” doesn’t focus on software protection but it does investigate the effects of piracy and has some conclusions that you might find interesting.

The paper referenced is interesting indeed. The paper does seem to make the assumption that downloading digital content is the equivalent of lost sales, which I've made clear I think that there isn't a causal relationship between the two. There's no data to support the assumption that those who pirated the software would have purchased it if a pirate version were not available at all. I think it is folly to assume lost sales because of the download of a virtual product. I'd admit that there are still support costs involved, but that's not what the paper is addressing.

I haven't kept up to date on my math since college, so I apologize if I have interpreted the data incorrectly in any way. The paper sets up two stages with choices of either pirating or purchasing software in order to calculate the probability that an individual would pirate or purchase software. The results are interesting.

Remember that higher δ implies that a majority of the piracy costs are suffered in the first stage, i.e., more likely that people don’t pirate at all and a lower δ implies that a majority of the piracy costs are suffered in the second stage, i.e., consumers are more likely to be deterred from holding on to a pirated copy.

I'f I'm reading the paper correctly, then it seems that δ is low for all the years analyzed, which would mean that most of the piracy costs are suffered in the second stage.

The authors conclude:

Our findings show that lower piracy is not merely a result of consumers not pirating at all, rather it is a result of pirates turning buyers in the second stage. The latter is possibly due to the fact that post-updating, those who turn buyers perceive a greater value for the product than those who remain pirates (an indication of piracy’s sampling effect) and/or consumers are stopped by the deterrence costs in the second stage and hence end up buyers. Our results suggest that there is ample evidence of both.

This seems to state part of the argument that I think a lot of proponents of less restrictive copyright law make -- that digital file-sharing creates new buyers who would not otherwise have been buyers. The paper focuses on the effect of piracy deterrence as a motivator for second stage buyers; however, in the text, the paper states that there is also "ample evidence" that individuals become buyers because they "perceive a greater value for the product." In my mind, that means that exposure to new content has caused some individuals to want to support the artists/inventors who created that content. These second stage "pirates" could very well be individuals who lend out copies to friends and family, a practice which many content producers dislike and view as piracy, despite the fact that (at least in the US) this practice is protected by the First-Sale Doctrine. I'd say that this paper isn't conclusive about the effects of piracy, but offers some interesting insights. The bottom of the paper states that research is still in progress, so we'll have to wait to see the final results.

Russell Carroll's post, that you quote, also explains that Reflexive uses an in-house developed DRM that they have repeatedly improved and continue to use.

[...]

From our point of view the Reflexive example shows that DRM has increased revenue, though not as much as they would like. You are making our point that DRM has decreased piracy and increased sales. If Reflexive used ByteShield’s much stronger SUM protection they’d see more sales with very little impact on honest users. [emphasis in original]

I revisited the Carroll posts again, paying close attention to the details. Olsson pointed out that one of the commenters of the original post mentioned that DRM had increased sales by more than 80%. But as other commenters mentioned, an 80% increase on 8% sales isn't a whole lot. The piracy rate of the games that Carroll analyzed was at a staggering 92% to begin with. As Carroll wrote himself:

The 1000:1 ratio is really, I think, the key takeaway of the article. Several people have grasped that and started applying it to different numbers in the industry, and the results are very disappointing.

I agree with Carroll that the ratio is what is really important here. Again, I don't mean to dissuade efforts to prevent piracy; however, I have to wonder what the cost/benefit ratio is when such few sales are the result of implementing increasingly difficult to crack DRM. Even the section of that article that Olsson quotes from Carroll doesn't seem to make the case that further DRM has increased sales significantly:

Clearly, if we could always have a big gain from a fix that maintains itself, it is worth spending the time to fight piracy. However, since that isn't always the case, it can sometimes (often?) be pretty discouraging to try and stop piracy.

In my view, Carroll states that if there is a big gain, fighting piracy would be worth the cost. But as his research demonstrated, that's a big "if," and Carroll seems to believe that a big gain isn't always (or even often -- his own words) the case.

Olsson's other points don't require that I go into great detail. I think that Olsson's points really demonstrate that ByteShield is committed to implementing a DRM scheme that has a lesser impact on the user while also attempting to respect long held consumer rights. Olsson acknowledges the problem with the industry's current approach to "license" software rather than sell it, and I think that is promising. Court rulings have already come down against the practice -- i.e., just calling the product a "license" doesn't make it one.

One thing that I still have an issue with is online activation and persistent verification. I think Stardock's approach provides a good compromise in this case. Instead of requiring online activation, Stardock's games require online registration in order to stay "always up-to-date" and to receive any other free, additional content for purchased games. Users only need to have registered a valid CD-key, which isn't an inconvenience at all. Being online isn't a prerequisite for playing the games, and Stardock is able to have the same kind of protection for its games that online activation provides. It's the carrot approach -- want free updates and additional content? You have to buy the game. At the same time, no additional limitations are forced onto users.

Furthermore, as Olsson has stated, the developer/publisher still has ultimate control over the level of DRM implemented through SUM, and I think that offering tools like online activation and persistent verification leave room for violation of rights. I will say that I no longer think that consecutive offline runs appear to be a problem, since Olsson clarified that this mechanism does not limit the number of installations, only the number of installations running simultaneously.