DRM Was a Bad Move: Sales Found to Increase 10% After Dropping the Chains (Study)
Source: Billboard Magazine
Digital rights management doesn't help the business of music -- at least according to a new study by a PhD candidate in Strategic Management at the University of Toronto named Laurina Zhang. Several years after the major labels removed DRM from their digital music files in 2009 (after prodding from Apple), Zhang, using data primarily from Nielsen SoundScan (which powers the Billboard Charts), analyzed 5,964 albums from 634 artists, "the largest random sample of albums collected for an empirical study," covering music released between January, 1992 and June, 2012. Zhang's major finding is that the elimination of DRM from digital music files increased sales by an average of 10% -- with, of course, a few caveats.
The most important of those caveats is that popular albums benefitted from a lack of DRM far less than "long tail," or less popular, albums. The study found that the removal of DRM from popular records had an insignificant impact on sales, while records that sold less than 25,000 copies saw a 30% increase in sales and records that sold less than 100,000 a 24% increase. The reasoning behind this is straightforward -- a work which is more easily disseminated and less well-known would benefit more than a record most people are likely to have already heard. As the study puts it: "Relaxing sharing restrictions is unlikely to increase the sales of music from popular artists. In contrast, DRM removal facilitates sampling of music from unpopular artists that otherwise would not have occurred, which can subsequently lead to the purchase of other music by the unpopular artist that otherwise would not have been purchased in the absence of DRM removal."
The study used as its statistical keystone the gap between EMI's removal of DRM in 2007, and the other three major labels' removal in 2009, which allowed Zhang an opening to analyze and average out the sales numbers between the then-Big Four. She goes on to put posit that EMI was the first major label to remove DRM from its digital music because its business depended more on "long tail" albums than the other three (Sony, Universal and Warner).
Certain genres may have benefitted from a lack of DRM -- or not -- based on that genre's typical demographics and their familiarity and/or comfort with illegal file sharing. Basically this means that the older the demographic, the more likely it is that the removal of DRM would help album sales in that genre due to a perceived discomfort with file sharing by those fans.
It's unfortunate that the study wasn't able to analyze independent labels' DRM strategies and their affects on sales, but combining and parsing such disparate data would be a lifetime project for a single person. Indeed, Zhang was forced to identify the major label owners of 145 subsidiaries by hand.
At the end of the day, DRM was an experiment which failed to accomplish its goal of reducing music piracy -- which has been declining steadily in its absence regardless.
Looking towards the future, Zhang expressed an interest in examining the effect that "unbundling," the near-universal availability of songs divorced fom their containing albums, on the music business.