Re: [dvd-discuss] .002 Online again -- DRM Business Case for Si

["D. C. Sessions" <dcs(at)lumbercartel.com>]

On Mon, 2002-09-30 at 08:34, John Zulauf wrote:
> Greetings all,
> 
> I managed to get "copyright issues" on my annual goals list, and thus am
> able spend work time on this list.
> 
> I have a personal goal of exploring this question:

We need to talk.
480-752-6545 business hours.

> "What is the business case for (or against) DRM collaboration?"
> 
> Believe it or not most corporations have no great passion for the
> fair-use and free-speech issues.  Their POV (arguably understandable) is
> the best return for the investors.  My goal is to show that even if the
> short term tactics are those of collaboration (building products with
> DRM support or technologies) long term it is in the interest of the
> stockholder of technology companies to oppose the DMCA, CTEA, et. al.
> 
> My initial case *against* DRM was the following (from the POV of a
> semiconductor company)
> 
> A. DRM reduces functionality of a technology product (hereafter
> "Product")
> B. Reduced functionality reduces the value of "Product" to the customer
> C. Reduced value reduces supply-demand curve intersection point (i.e.
> lowers the average selling price (ASP) of "Product"
> D. Reduced ASP of "Product" places pricing pressure on the components
> ("Si" -- i.e. silicon) -- reducing ASP of "Si"
> E. Reduced functionality of "Product" is artificial, thus "Si" is no
> less (and probably more) complex
> F. Lower "Si" ASP with equivalent complexity implies lower margins and
> ROI for "Si" QED.

I hate to say it, but keep in mind that DRM offers
the prospect of forced obsolescence.  Facially, it
*increases* consumer turnover, thus manufacturer
revenues.  (Yes, that's another "reduced value"
argument, if you assume an inelastic net budget
for entertainment.)

A large part of the whole DRM issue, from all sides,
depends on how elastic the net entertainment market
is.

If total consumer spending on media entertainment
is inelastic, then DRM is a net benefit for content
providers because they can reduce their costs by
minimizing marginal expenses (less volume).  For
everyone else (consumers, manufacturers, etc.)
the result is negative thanks to less volume.

If total consumer spending on entertainment is
elastic (e.g., people start playing outdoors)
then DRM is a net loser for absolutely everyone
unless you count being forced to actually *do*
something as a net benefit for consumers.

Either way, DRM is a loser for the manufacturers.

> This argument has several clear weakness
> 
> Attacking "B" -- if DRM entices media companies to release otherwise
> unreleased material (for example movies still in theater, or prior to
> DVD release) -- then the device acts as an access enabler, with *added*
> value to the customer.  This is true whether the the product is funded
> by the end-customer (who sees value in enhancing their couch potato
> abilities) or by the service provider (who see value enhancing their
> average revenue per user (ARPU, or sometimes just RPU -- read "are
> pooh")

I don't see how this is a winner for the cartel.
At best it moves up the revenues for home release
for earlier returns, but it does it at the expense
of theatrical revenues which would otherwise add
to the net revenue stream.

As for releasing otherwise unreleased material,
they have no reason to do so except to grab
market share from the other members of the cartel.
Increasing consumer choice reduces ASP no matter
how you figure it, and the whole point of DRM is
monopoly maintainence.

> Attacking "F" if the "B" attack is true then a DRM enabled "Si" device
> may in fact have higher margins and volumes than one without.

This appears to simultaneously assume that the market
is both elastic (consumer spending increases) and
inelastic (they choose the more expensive product.)

> Finally the "Si" vendors may be in a "prisoner's dilemma" -- "if we
> don't collaborate, someone else will".   Though this is typically
> couched in a more "customer focused" way.
> 
> >From my POV "Si" vendors are really in this position *because* of
> current laws and policy -- and focusing on the immediate customer blinds
> one to the longer term threat of stagnation (technology progress gated
> by the most paranoid) and longer term opportunities (new killer apps --
> e.g. video rip-mix-burn or ...)

After losing a *lot* of cow-orkers this week (and nearly
being unemployed myself) I'm not so sure that Si vendors
are going to care about the long term.

-- 
| The race is not always to the swift, nor the battle to the strong. |
| Because the slow, feeble old codgers like me cheat.                |
+--------------- D. C. Sessions <dcs@lumbercartel.com> --------------+