Value and Digital Rights Management:
A Social Economics Approach
Benjamin J. Bates
Professor,
School of Journalism & Electronic Media
College of Communication and Information
University of Tennessee
Paper to be presented to the Communication Technology division,
Association for Education in Journalism & Mass Communication,
for the 2006 annual convention, San Francisco, CA
Value and Digital Rights Management:
A Social Economics Approach
Abstract:
Current copyright approaches overemphasize financial returns compared to alternative sources of
value (both social and private) deriving from information use. I use an approach designed to
emphasize those other aspects of value and consider the implications of current and proposed
Digital Rights Management (DRM) approaches for the creation of social value. The paper
concludes that while most DRM approaches actually exacerbate conditions, DRM also offers the
potential for an intellectual property rights system that more fully incorporates non-fiscal value.
Value and Digital Rights Management:
A Social Economics Approach
The primary rationale for intellectual property policy and copyright is based on the
distinctive and somewhat problematic nature of the economics of information goods and
services. A number of studies suggest that many information goods and services exhibit the
properties and characteristics of public goods (Kingma, 2001). Others cite the tendency for
information markets to exhibit a variety of market failures for information goods and services
(DeLong and Froomkin, 2000, Shy, 2001). In either case, it is clear that information was not a
typical, physical, economic good, and that it needed to be treated in a distinctive manner (Babe,
1995; Bates, 1988; Bettig, 1996; Laffont, 1989; Lessig, 2004; Rescher, 1989). This made
developing a mechanism for creating and allocating private property characteristics to
information goods and services essential if one was to assure the functioning of information
markets (Jackson, 2002).
The primary intellectual property rights mechanism for creative information goods and
services has been copyright (Bettig 1996; Jackson, 2002; Lessig, 2004;Teeter & Le Duc, 1995).
Copyright law provides a legal claim to exclusive ownership of information under certain
conditions and for certain terms. Originally developed as a mechanism to promote intellectual
and creative activities by allowing authors to benefit from their work by licensing copies,
copyright sought a balancing of the rights of authors, distributors, and consumers of information
goods (Bettig, 1996; Vaidhyanathan, 2001). In an era when large-scale copying was relatively
expensive and generally resulted in degraded content, the copyright metaphor worked reasonably
well.
Over time, that balance has shifted, with longer terms for copyright, attempts to narrow the
scope of fair use exemptions, and expansions of the range of content and media forms covered
by copyright legislation. While proponents argued that such extensions would benefit both
creators and the public by encouraging the creation of new information products, critics argued
that the proposed revisions significantly extended the intellectual property rights of copyright
holders at the expense of public rights and the public welfare (Fujita, 1996; Lessig, 2004;
Litman, 1996; Lipinski, 1999; Samuelson, 1998). Some have suggested that the recent revisions
reflect a somewhat disturbing general trend towards a greater emphasis on narrow individual
property rights to intellectual property, an increasing commodification of information (Babe,
1995; Bettig, 1996; Schiller, 1989), and away from balancing private and social benefits.
At the same time, the development of electronic and digital media began to transform the
production and distribution processes for information goods and services (Bates & Albright,
2006, DeLong & Froomkin, 2000; Lessig, 2004). In particular, once content was in digital
form, it became both cheap and easy to make perfect copies, as well as to shift content from one
form or format to another (Negroponte, 1995). In other words, the physical constraints of
copying were largely lifted.
Technology thus made copying relatively easy and cheap. This not only provided additional
incentives to traditional information “pirates” (those making unauthorized copies for commercial
purposes), but also made it easier for individual users to make their own copies, and to shift
content formats (Davis, 2001; Lessig, 2004). The incentive to “pirate” digital works was further
enhanced by several factors: the attempt to criminalize what had long been perceived as
reasonable and fair use; the use of copyright to remove content from circulation, and the
increasing profit margins resulting from a failure to reduce retail prices as production costs
declined.
Copyright owners responded with two basic strategies. First, they encouraged the
strengthening of copyright laws and penalties, using the courts in an attempt to impose a greater
potential risk to copyright violation. Second, they sought the development and use of
technological copyright protection mechanisms (CPM), in an attempt to make copying more
difficult and costly. However, the viability of CPM also depended on legal enforcement, to
ensure that the technologies were uniformly adopted and diffused, and attempts to circumvent
the CPMs were criminalized. In the U.S., the Digital Millennium Copyright Act (1998) provided
a variety of mechanisms designed to enforce copyright protection mechanisms, although aspects
of the act remain controversial (Clark, 2002).
In the meantime, it had become clear that the copyright metaphor, with its emphasis on
“copies” was becoming more and more problematic in a world of digital networks. It was
increasingly unclear whether copyright would continue for owners to capture, or appropriate, the
inherent value of their information goods in the face of continuing digital innovation (Davis,
2002). The increasing emphasis on technological restrictions, and the concern about the ease of
copying prompted a focus on the consideration of schemes that would restrict distribution or
prevent copying, leading to what can be called the digital rights management (DRM) approach.
Some even saw DRM as having the potential to solve the digital copyright dilemma by shifting
the primary metaphor from control of copying to control of the ability to distribute and use
information goods and services. Regardless, it is clear that as digital media diffuse, DRM will
gain ground as a mechanism for protecting (and extending) intellectual property rights.
This paper will examine the issue of digital rights management from a social economics
perspective. This perspective is based on a recognition of the peculiar characteristics of
information as an economic good, in particular the notion that there are ancillary private and
social values created with the production, distribution, and consumption of information goods
and services (Bates, 1988), which provide a range of rationales for creating information goods
beyond the financial return from the sales of copies (Benkler, 2006; Lessig, 2004). In other
words, this approach argues that there is value to information beyond the commercial value
returning to the copyright owner, and that considerations of such value must be incorporated into
any viable long-term information policy.
Thus, there will be three main sections to this paper. First, I will describe the main digital
rights management concepts currently under consideration, and discuss how digital rights
management can serve as a mechanism for extending, or even reconceptualizing, the intellectual
property rights metaphor. Next, I will outline the social economics concerns and approach to the
evaluation of information policy. Finally, I will apply that approach to the consideration of some
specific DRM schemes.
Digital Rights Management
Digital rights management (DRM) is an umbrella term that refers to a mixture of legal and
technological mechanisms designed to provide intellectual property owners a greater level of
control over the distribution and use of their property in a digital environment by designating
what rights consumers have in the use of the information goods or services once they are
purchased. DRM is an emerging system that seeks to use the same technologies that have made
the enforcement of traditional copyright problematic in a digital environment to maintain and
extend intellectual property rights.
The rise of digital media has created a number of problems for copyright, in large part by
removing the physical constraints of copying associated with older media forms (Lessig, 2004).
In the digital world, perfect copies can be made, generation after generation, cheaply and easily.
Moreover, many digital transmission and display systems work by making multiple copies of the
content, arguably making copyright infringement endemic. In earlier papers, I argued that digital
forms and media have raised questions about the long-term viability of the current copyright
metaphor for intellectual property rights (Bates, 1999a, 2001, 2002; also see Davis, 2002; Fujita,
1996; Lessig, 2004; Litman, 1996).
While digital rights management has its roots in basic copy-protection technologies, the
ability to process information embodied in digital media that made it easy to copy (and to bypass
simple copy protection schemes) also provided content owners with the means to explore other
forms of control. DRM, as differentiated from simple copy protection, incorporates those
approaches that seek to take advantage of the ability to process (and thus control the use of)
digital information, rather than simply restricting the making of copies. In addition to the current
legal prohibitions against copying found in current copyright law, most DRM proposals seek to
allow the imposition of additional controls over the distribution and/or use of intellectual
property, at the discretion of the intellectual property rights owner (Samuelson, 2003). In
additional, digital rights management can be applied to other forms of intellectual property,
including currently non-copyrightable materials.
Opponents assert that these added restrictions may assert rights that do not currently exist in
intellectual property law, or may, in fact, restrict well-established consumer rights (EFF et al.,
2005; Samuelson, 2003). Boldrin and Levine (2002) suggest that this moves beyond the wellrecognized focus of traditional copyright (the right of first sale) and acts to establish a new
intellectual property right, which they call downstream licensing and view as economically
dangerous. Certainly, the technological capacity to control distribution and use of digital media
content need not be constrained to legally mandated or permitted uses, and allows those creating
the content to assert rights that may or may not exist under established law and policy. The
second concern is also valid. Most copyright law provides some exemptions, mostly in the form
of what is variously referred to as fair use or fair dealing rights, that permit limited copying
under certain circumstances. While a sufficiently sophisticated digital rights mechanism may be
able to recognize some of these conditions, it is easier to simply ban all copying or all types of
certain uses, even those that are currently legal under certain conditions.
One can see Digital Rights Management as an attempt to deal with the copyright crisis posed
by digital media. Just as technology permits easy copying, technology might also be able to
dictate and enforce the terms and conditions of licensed use. However, technology as a solution
can only be successful if it is ubiquitous, and that means combining technological solutions with
legal mandates for its use. Thus, the movement to DRM involves both the creation of
technological copy protection and/or rights management mechanisms with the development of
laws and policies mandating their use and preventing circumvention. This is where a further
concern is raised. The need to impose technological solutions throughout the digital realm will
certainly increase the cost of equipment and networks, and may well slow down development of
new technologies until such time as the DRM technologies can be developed and incorporated
into new systems and devices.
Interestingly, while the initial push for DRM seemed to follow the old copyright metaphor
(limiting the ability to copy), some new proposals can also be seen as accommodating an
alternate intellectual property rights metaphor, the “right to communicate.” Under this approach,
the focus is not on copying per se, but on controlling the conditions of distribution and use.
Early Digital Rights Management (DRM) focused on security and encryption as a means of
solving the issue of unauthorized copying. That is, imposing a content encoding system and then
limiting access to the appropriate decoding technology or exacting a payment for the use of the
decoder. This is often referred to as the “containment” approach, and addressed the issue of
excludability, but did not enable any further restrictions on the use of the decoded content. It
embodied the principle metaphor of copyright in terms of focusing on controlling access to the
content, and relied on the traditional legal prohibitions of copyright law to protect against piracy
(illegal copying). This combination of encryption and licensing is widely used in proprietary
media distribution systems.
An early example of this approach was the DVD Forum’s Content Scrambling System
(CSS) (DVDCCA, 2006, Wikipedia, 2004). The forum got content producers to agree on a
common encoding system for movies on DVD. Firms making players or software to view these
encoded movies had to license the decoding system from the DVD Forum, and as part of the
license, they had to agree to incorporate certain restrictions on output and display. While
achieving its primary goals, the CSS system did little to prevent piracy, and was able to be
bypassed when an open source decoder (called DeCSS) was developed (Patrizio, 1999). This
particular system epitomized the primary problem with systems based on technological copy
protection systems: the same technologies can be used to bypass or invalidate the protection
scheme. The DVD Copy Control Association sought legal protection by seeking to ban
discussion, publication, and distribution of the decoder software, which was ultimately rejected
on First Amendment (free speech) grounds (Hansen, 2004).
What can be termed the second-generation of DRM offers a broader potential for managing
distribution and use of content. Essentially, this set of DRM schemes involves the encoding of
markers into the content that can be used for description, identification, protection, monitoring,
tracking, and specifying authorized uses of all forms of digital information goods and services.
When combined with technology to read markers and use them to control usages by abiding by
whatever restrictions are imposed, this second generation of DRM offers the potential for a much
wider capability for the management of digital content and rights.
Recent examples of this “marking” approach can be found in the various DRM schemes
used in downloaded music. Apple, Microsoft, RealNetworks, and Sony all have systems that
allow content producers to place restrictions on the use of digital music files within their
systems, although the range of permitted uses varies from system to system. Another example
can be seen in the proposed “broadcast flag” DRM system for digital television in the U. S.
(Crawford, 2003), and the development of digital interconnection standards such as the HDCP.
Most of these systems incorporate the use of markers and mandated control mechanisms to limit
distribution as a means of limiting copying.
The related “rights locker” approach is conceptually similar in seeking to focus on uses
rather than copying, although it would require a drastic shift in how we define “ownership” of
information goods and services. The premise of the “rights locker” approach is that consumers
won’t actually own distinct physical copies of information goods and services. Instead, content
is centrally stored on the digital network, and what the consumer owns are a set of legal rights to
access the content from a range of devices (Bechtold, 2003).
One issue with all of these approaches is that they essentially function by limiting access to,
and use of, digital content. Since many creative works build on, or incorporate components of,
other creative content, there is a concern that such mechanisms will inhibit further creativity and
the development of derivative works by making their access and use more costly. There is
considerable evidence that intellectual property rights extensions actually reduce the
development of additional works, at least for patents (cf. Benkler, 2006; Lerner, 2002).
These concerns have contributed to the development of the concept of dynamic DRM
systems, where part of the specification in the rights locker are the conditions under which
content can be used and/or transformed into derivative works. Part of the idea is that costs to the
developer are reduced by passing some of the initial content fees through the derivative work, to
the consumer of the derivatives. In theory, tags and some rights are transferred to, and embodied
in, derivative works, and some of the revenues earned by the derivatives get passed back to the
original work. While it is argued that such a system can address some of the access and
creativity issues raised in copyright debates, it requires an additional, and substantial, level of
complexity to manage rights and works involving a number of creators at various levels
(Bechtold, 2003). The Creative Commons and GNU General Public License are partial
examples of dynamic DRM, in that they explicitly address conditions of downstream use.
However, those systems avoid the more problematic and complex issues of how to appropriate
and distribute the value (payments) for derivative and communal works by the simple tactic of
not asking for payments. Critics (Cohen, 2003; EPIC, 2004) have also raised privacy concerns
with this approach, as it requires monitoring the use of content.
There is one other approach that can utilize the “markers” variety of DRM. One solution to
the issue of piracy is to, in essence, abandon the idea of controlling copying, distribution, and use
of digital content, in effect providing a public license to use information goods and services.
Such a license, linked to a levy or access fee system, can provide a means for extracting value
from use, and thus maintaining a degree of remuneration for authors and copyright owners. One
example of this approach is the tax placed on digital recorders and recordable media by several
countries. The fees collected are supposed to offset the losses of the presumed piracy.
In general, this system is not favored by industry, as it limits their ability to control uses and
extract maximal value. There is also the issue of how to distribute funds equitably when there
are vast disparities in usage. Here, a DRM “marking” system can be useful, by facilitating the
ability to identify, track, and measure the use of covered information goods and services,
providing a mechanism for more equitable distribution of collected fees and levies.
However, to make these kinds of schemes work, the DRM scheme and its associated
technical CPMs must be mandated throughout the digital system, including distribution, storage,
and display devices, imposing significant costs and slowing development of digital media and
information systems. When one recognizes that digital media continue to converge, this suggests
an ever-expanding range of digital media and technologies that must be made compliant with any
DRM scheme, thereby increasing compliance costs by orders of magnitude.
In addition, the capacity to place controls throughout the digital media raises a number of
serious issues. Several scholars have raised concerns about the social impact of DRM (Gillespie,
2004; Lessig, 2004; May, 2003). Many DRM “marking” systems require registration, and
embody tracking systems that raise privacy concerns (Bechtold, 2003; Cohen, 2003, EPIC,
2004). The range and scope of “marking” control options clearly provide the potential to assert
digital “rights” that are not recognized by current law or policy (Samuelson, 2003). There are
numerous examples of such extended rights in existing DRM applications. Further, the mere
existence of mechanisms that allow groups to control information and information flows, and
allows the tracking of uses, raises serious questions about the potential impact of restricting
access on creativity, on free trade and free markets, and particularly the concept of the
marketplace of ideas (Bechtold, 2003; Benkler, 2006; Lessig, 2004).
Some of these concerns might be overlooked if digital rights management functioned
effectively. However, all DRM systems to date have failed to meet the challenge of protecting
the rights of the rights holder while also allowing the user their full legal rights under current
copyright laws and exemptions. Further, none have succeeded in totally preventing criminal
copyright infringement by organized, unlicensed, commercial pirates (Wikipedia, 2004). Digital
Rights Management looks, like traditional copyright, to be problematic in execution, with real
private and social costs as well as benefits (EFF et al., 2005; Gillespie, 2004; Shy, 2000). Thus,
it would seem prudent, if not necessary, to require an honest consideration of the relative costs
and benefits of its approaches, both for individuals in the marketplace as well as society more
broadly, rather than focussing only on the potential to control and the ability to maximize returns
for one group (owners).
The Social Economics Approach to Information Policy
Economists recognize that information goods and services are not your typical private good
(Arrow, 1984; Babe, 1995; Lamberton, 1971; Melody, 1993; Noll, 1991, Wolpert & Wolpert,
1986). Many have argued that information goods and services tend to have certain
characteristics of public goods, principally non-rivalrous consumption and non-excludability.
Others have noted that information often incorporates multiple goods and/or operate in multiple
markets. Often, they must be consumed in conjunction with other goods (including time); that is,
many information products are what economists call joint products or complements with other
goods and markets. In addition, information goods and markets tend to be non-transparent, with
high degrees of uncertainty (imperfect information) about both the good and the market. Thus,
information markets tend to be complex, interdependent, and imperfect.
Another problematic aspect of information goods and services is related to the “multiple
goods” aspect. One way of looking at that is to separate the “information” (content), from the
distribution form (conduit). In other words, separate the ideas of the book from the paper it is
printed on. If you do that, then it is easy to see (particularly in a digital universe), that the
information component is non-physical, and while expensive to produce initially, is easily and
cheaply copied. Information goods and services are generally considered to have (at least for the
information/content component) a high fixed cost, and very low marginal cost, often approaching
zero. In fact, marginal cost may always fall below average cost, leading to the situation where
“normal” market optimization would mean that such information goods would never be
produced (as revenues from sales would never match total costs of production).
Finally, as with your typical private good, the value of information goods and services
comes from its utility- from its consumption and use, and the consequences of that use (Bates,
1988, 1990). The impact of that use for information goods, though, can extend far beyond the
immediate gratifications of the buyer and seller in the market, and thus can have value impacts
beyond the exchange. Benkler (2006) refers to these as nonmarket values and argues that, in
fact, the bulk of information and cultural production strategies and motivations fall into
nonmarket areas. The value of advertising, for example, does not come from the fees paid to the
advertiser for their content (in fact, the advertiser effectively pays others to consume their
information products), but rather from the hoped for impact of that content on later consumer
behavior. Such ancillary value can be private (accruing to individuals or firms) or social
(accruing to society more generally, say from the more efficient operations of economic and
social systems). In either case, there is a tendency to not include considerations of ancillary
values in typical market operations, or in policy arguments and considerations. These ancillary
values are what economists call externalities. For many information products, these values are
significant and meaningful, and for some, the ancillary values may be greater than the exchange
values. The failure to consider them inevitably distorts behaviors and market operations.
All of these features pose problems for, or can distort, efficient market operations, leading to
what economists call “market failure.” Or, to use Benkler’s “nonmarket” terminology (2006),
production and use may occur outside of traditional economic markets. Benkler shows that only
one particular class of information and cultural products tends to be able to fully benefit from
granting and extension of “exclusive rights;” therefore any extension of such rights further
distorts information production and markets. In any case, these concerns shouldn’t be taken as
suggesting that information markets can’t work, but rather that they may fail to operate in the
same way as traditional markets, or that they may not be socially optimal or economically
efficient.
Market failure is often cited as justification for imposing policy or regulation, in an attempt
to correct the perceived market problems. To be effective, however, such policy must accurately
identify and resolve all market impacts and “failures,” not just one set. One of the main
problems with current and proposed intellectual property rights policies is that they have focused
on one specific failure (the public good aspects of information and the failure to fully appropriate
market value) but largely ignored other significant failures (such as considering the non-financial
motivations of creators, the enforcement costs of proposals and their impact on ancillary values,
or how creation and use of information adds to social value). They have also arguably focused
on the concerns and impacts of the producer side of the market, while failing to consider impacts
on the consumer side, or on society more broadly. The social economics approach emerged from
a recognition of the distinctive nature of information as an economic good, and the general
failure to adequately incorporate these aspects into economic and policy analyses (Bates, 1988,
1990).
The social economics approach to analyzing intellectual property rights seeks to achieve a
more balanced and comprehensive approach to considering the impacts of technological and
policy developments in information markets. It follows the early intent of much intellectual
property rights laws and policy of seeking to balance the interests of intellectual property
producers, consumers, and society at large. It is also based on the fundamental presumption that
intellectual property only creates value through use, and through the impact of that use on
individuals and society. Another point of distinction from much current economic analysis of
intellectual property rights is the emphasis placed on the non-monetary values and motivations of
intellectual and cultural property for some producers.1 It recognizes that there is a broad range of
direct and ancillary costs and benefits that can operate through a range of markets and levels of
analysis, and focuses analysis on those aspects.
The social economics approach seeks to identify as full a range of impacts, sources of value,
costs, and benefits as possible, and consider their impacts on behaviors and markets. It pays
particular attention to broader social impacts and the generation of social value through the
creation, distribution, and use of intellectual property of all forms. While these externalities and
ancillary impacts are generally difficult to predict and measure precisely, one can apply an
economic approach to consider at least the likely direction and size of impacts on markets and
behaviors, or at least identify the types of ancillary values that should be considered.
1
The emphasis on enforceable intellectual property rights emphasizes the ability to extract (appropriate) monetary
value, thus privileging some kinds of intellectual property over others.
Specifically, the social economics analysis below will consider digital rights management,
as an intellectual property rights scheme, from a more comprehensive perspective than is
typically applied, with a focus on identifying and discussing a more comprehensive set of values,
costs, and benefits in a comparative perspective.
A Social Economics Analysis of Digital Rights Management
As noted above, while it is difficult, within a social economics framework, to derive and
measure externalities in a reliably accurate manner, it is quite possible to at least enumerate
additional impacts on value, and consider the implications of their nature and basic direction and
scale. In earlier papers (Bates, 1999a, 1999b, Bates & Miller, 2001, Bates, Miller & Raber,
2001), I applied a social economics approach to examine certain issues related to an analysis of
broadcast regulation and certain aspects of copyright law. The process of considering impacts
starts with a baseline model, or set of assumptions.
For intellectual property rights considerations, the baseline starts from the historical,
philosophical, foundation for intellectual property rights law and policy. Clearly, one of the
major arguments behind the need for such policy is a recognition that society benefits from the
creation, distribution, and utilization of information goods and services. Copyrights and patents
provided a mechanism for improving the ability of creators to benefit financially from their
work, arguably providing a greater incentive for creativity. Tying the extraction of monetary
value to the licensing of the intellectual property, and requiring that for protection the intellectual
property must be made public, meant that this financial benefit only accrued with distribution of
the information. On the other hand, improving the ability of creators to benefit act to increase
the cost of these goods, shrinking their consumption and use. This negative impact on use was
offset somewhat by the imposition of limits on creator rights (via time limits on these rights, fair
use and other exemptions) that promoted utilization.2 In particular, the inclusion of exemptions
could be seen as specific instances where it was recognized that the general benefits of use
outweighed the potential loss of revenues to rights holders.
How do the various DRM approaches threaten this balance of rights, and impact on the
ability to find, access, and utilize information goods and services upon which value is
dependent?
First, let me consider some common aspects of DRM approaches that have broad
implications on use and the ability to create and extract value. First, all DRM approaches rely on
a combination of legal and technical protections. Thus, there are clear enforcement costs
associated with these approaches, both in the cost of including the compliance technologies and
in the costs associated with legal enforcement. The cost of the technological protections must be
borne by all users of covered technology, irrespective of whether it is used for the purposes
covered by the rights, thus creating an added cost to all users of the covered technology and a
further distortion of the market. Further, the need to develop solutions, standards, and then
develop appropriate protection technology can delay development and diffusion of new
technology and information products and services.
Needless to say, enforcement costs born by distributors are likely to be passed on to
consumers. Both the added costs and delays, by reducing use of intellectual property, actually
reduce the ability of rights holders to appropriate value, as well as imposing additional indirect
social costs. These costs also impact on the ability of creators to extract ancillary value that
depends on distribution and use of their work. To the extent that such enforcement costs are less
2
A limited period of exclusive rights provided an incentive to rapidly and widely disseminate the creative work in
order to extract the most value. In addition, once work passed into the public domain, it was available at a lower
cost, permitting access and use by a larger mass of consumers.
than the likely losses due to inappropriate uses, it may be seen as a net gain for rights holders.
However, in terms of ancillary values and nonmarket uses, enforcement costs extract a clear loss.
A subtler impact can be the shift in the kinds of information goods and services created and
distributed. The emphasis on extracting monetary value privileges content with commercial
value. In addition, the application of enforcement costs provides a threshold of sorts in terms of
which content gets distributed. Information goods and services of limited commercial value
and/or limited demand (to the degree that expected returns are less than expected enforcement
costs) are less likely to be made available. Thus, goods whose contribution comes primarily in
terms of the ability to generate social and ancillary value through use, or whose creators are
motivated by nonmarket factors, are likely to be underproduced while goods whose primary
value is commercial are likely to be overproduced. Similarly, those goods whose value may be
concentrated in small groups of users or the poor are likely to be under produced, while those
with more widespread use will be overproduced. This suggests a shift in production and
distribution away from those goods with the greatest social economic value. Basically,
enforcement costs impact both economic and social value negatively.
DRM may also be used to limit or prevent use that is currently considered legal and
appropriate. In doing so, it not only reduces social and ancillary value creation by reducing use,
it also has the effect of transferring value from consumers to the rights holder, further shifting
and distorting the balance of values. From this perspective, all DRM approaches will inherently
increase costs, reduce demand, and distort the production and distribution of information and
cultural products to some degree. However, specific approaches are likely to differ in their
abilities to address these concerns.
Containment approaches have similar social economic implications as does copyright, since
it works in essentially the same way. The emphasis on encryption, though, raises some
distinctive characteristics. Encryption only works if one doesn’t know how to, or is prevented
from being able to, decrypt. Thus, those employing such technologies have a vested interest in
limiting research and discussion in those areas, and a particular concern about the distribution of
decryption knowledge and technologies. As it is unlikely that DRM laws like the DMCA could
be applied to limit research and speech on decryption techniques, or would be effective even if it
could be applied, reliance on containment approaches would seem to require continuing
investment in improved encryption techniques and the need to upgrade systems to incorporate
the new encryption technology. Thus, reliance on encryption is likely to lead to faster
obsolescence in media content and systems, and the added costs that implies.
Furthermore, with this approach, the user has access at some point to the decrypted content,
and rights holders must thus seek additional protections against subsequent use through the
imposition of further controls of the content after decryption. In this way, containment DRM
approaches are likely to have a negative impact on creativity and innovation in several areas,
thus having an additional negative impact on social value. Thus, as Gillespie (2004) notes, the
impact of DRM schemes such as the DMCA is not merely on copyright. Such mechanisms
anticipate and support the development of an infrastructure that can impact virtual every aspect
of the purchase and use of information goods and services, as well as the kinds of information
goods and services that are produced and distributed. In particular, as containment systems do
not address use per se, they tend to be unable to differentiate permissible from illegal uses.
Additionally, the encryption systems and anti-circumvention laws can actively prohibit
consumers from some legal uses of their copies of content. This can enhance the negative effects
of such systems.
“Marker” or “flag” type approaches that shift from preventing copies to licensing uses also
use a combination of legal and technical systems and the costs they embody. However, in
shifting away from a focus on copying, it can resolve some of the issues arising from the
development of digital and telecommunication technologies. In this sense they may have a more
positive impact on innovation, and thus social value, than traditional copyright or containment
DRM approaches. On the other hand, the shift to uses also creates the potential to extend
applications to cover uses and content that are not currently covered under intellectual property
rights.
The development of new rights or coverage areas creates a shift in existing rights and
values, usually from consumers to rights holders. Any reduction in consumer rights reduces the
inherent value of the good or service, reducing demand for, and consumption of, that good. The
impact is likely to be even stronger if the shift is in areas of social or ancillary value, or where
there are nonmarket motivations, through the added enforcement costs. These demand shifts will
also be reflected in shifts in the kinds of information goods and services produced (see above).
DRM approaches using markers and tracking systems also raise questions about privacy.
Tracking information and media use appropriates personal value in both the concept of privacy,
and in terms of the actual information gathered. Further, awareness of tracking can alter media
use patterns, particularly for non-mainstream materials. Thus, to the extent that such information
is gathered and used by rights holders, there is likely to be a negative impact on social economic
value. And the greater the use of DRM to restrict and limit uses, the greater the likely negative
impact.
It should be noted that the use of “markers” themselves are likely to increase costs only
minimally, and can have a positive value to creators in terms of establishing authorship or credit
for their work. It is possible that the use of “rights markers” with minimal monitoring and
restrictions could increase both market and nonmarket motivations for the production and
distribution of information and cultural content, possibly offsetting minimal enforcement and
compliance costs. It could also help by helping to shift the focus from restricting copying (i.e.
limiting use), to an emphasis on maximizing distribution and use (and thus the resulting added
social and ancillary value).
The “rights locker” approach, if adopted, is likely to be initially disruptive as it calls for
abandonment of the idea that consumers “own” covered goods and services. The disruption
itself is likely to have a negative impact on social value, from a combination of transition costs
and the impact of uncertainty regarding values under a new paradigm. Once past that stage,
however, the fact is that whatever value which consumers associated with “ownership” will
disappear as consumers focus on the use of information and cultural goods, rather than the
ownership thereof. To the extent that there is such value, the social economic impact will be
negative. On the other hand, if the “rights locker” approach is implemented in ways that create
value for users, and enhances the use of information and cultural goods, it is possible that the
negative impact may be offset by an increase in use and social value.
Proponents of this approach argue that it can provide additional flexibility and accommodate
a wider range of uses, which can add value for the consumer. With a centralized store of
content, consumers could save in not having to upgrade formats (replacing LP with cassette with
CD with DVD-audio) or replace in the case of product improvements or spoilage of the physical
copy. In addition, there is the broader benefit to society of not having to manufacture multiple
physical copies. The added benefits and cost reductions could be significant, but only if those
rights are implemented and not offset by increased costs. Given the information industry’s
tendency to try to appropriate as much value as possible, I am a bit skeptical about widespread
implementation of those features and rights.
Since the “rights locker” approach takes advantage of digital information systems, it can
also benefit from the low, and declining, costs of storage, reproduction, and distribution inherent
in such systems, it also reduces the bias towards high-value content inherent in the higher costs
inherent in the creation and distribution of physical copies. Thus, this kind of system would
likely prove to be more welcoming to low value or low demand content. Further, if the system
allows flexibility in the assignment of rights, this could allow those who are interested more in
the non-monetary forms of ancillary value to determine their own approach to a rights bundle.
The inherent flexibility can reduce or even overcome the commercial bias of older approaches.
Thus, the “rights locker” approach has the potential to at least lessen negative impacts, if not
offset them fully and increase social value by encouraging creation, distribution, and use of
information goods and services. The primary downside to such a shift is that it is predicated on
the widespread availability of digital networks and devices to connect to them. If information
and cultural goods shift primarily to such networks, that could disadvantage those areas and
individuals with limited access to such systems.
The idea of Dynamic DRM is to provide a mechanism to promote use and the creation of
derivative, incremental, and communal information goods and services through a mechanism
that tracks such uses and provides a means of allowing rights holders to appropriate some portion
of the value of the consequent work. As such, it also embodies a shift in how we think about
intellectual property rights. In this case, the shift is in the idea that the rights holder should not
only benefit from value of his/her work, but has a right to a part the value of any subsequent
work that benefits from use of the original work. As with the “rights locker” approach, adoption
of such a system would likely be disruptive, with the likelihood of negative impacts on social
value initially.
In the longer term, there is an argument that such a system will encourage rights owners to
make their work more accessible, thus creating some additional social value. Since rights
holders would reap additional financial returns as well as the ancillary returns from access and
use, the greater value pool should encourage rights holders to make content available. However,
if one accepts the argument that the likelihood of producing information goods and services is
positively linked to the expectation of the value to be derived, then there is a problem. If the
value of second-stage goods and services must be shared with those whose original content is
used, then less value is available to the creator of the second-stage good. In other words, while
the dynamic DRM approach provides some additional incentive to make content available, it
provides a stronger incentive to not use those goods and services, at least in an identifiable way.
And the size of the impact is directly related to the focus on appropriating financial value from
subsequent uses. Thus, dynamic DRM would not appear to be the solution advanced by
proponents.
In addition, dynamic DRM systems that would actually track derivative and secondary uses,
and assure that returns flow back to original rights holders would require the addition of
significant layers of complexity to the technological and legal DRM structure. This is likely to
make implementation and enforcement costs significantly higher for dynamic DRM systems,
with all the attendant negative consequences for social value.
The licensing/levy system is the most likely to be socially beneficial, depending, of course,
on how it is implemented. Such systems have the advantage of tending to have significantly
lower implementation and enforcement costs, which has the broad impact of increasing both
supply and demand for information goods and services. The impact on demand and use is also
greater with the adoption of a flat, rather than usage-based, fee structure. However, the licensing
approach can be inefficient in distributing returns, and in appropriating the full value of products
(particularly if not usage-based). These inefficiencies are actually a major source of social value,
as it is the social value that is often appropriated. The inefficiency in distribution can be
addressed by the use of DRM to track uses and thus distribute payments in proportional to use.
Flat fee structures can also encourage greater experimentation and use of information goods
and services. License approaches, combined with digital media systems can also provide greater
incentives for innovation, creation, and access, as authors can bypass the commercial viability
threshold of gatekeeper distribution systems, yet still be able to extract some compensation more
directly. Thus, the combination of public licensing combined with a usage tracking system
would seem to offer the greatest potential for the creation of social and ancillary (non-financial)
value, while providing a mechanism for financial returns as well.
Conclusions
Briefly, it would seem that the main DRM approaches will likely follow in the steps of
current trends in copyright: a shifting in rights and values from consumers to rights holders, and
a shift in the kinds of information goods and services that are produced and made available. As
such, the basic social economic impact is likely to be negative and contribute to distortions in the
production of, and markets for, information and cultural goods. However, several DRM
approaches do offer some relative advantage compared to current copyright law and its focus on
limiting copying. In particular, DRM has the distinct advantage of being able to take advantage
of digital information systems, rather than attempting to make digital systems fit the old
copyright metaphor. As digital media systems and markets expand, this relative advantage is
also likely to increase, making a case that DRM approaches are more efficient and are likely to
positively impact social value, at least when compared to copyright per se.
As to the various DRM approaches, I would conclude that the containment approach is in
general the most negative, as it tends to be the least flexible and would likely require continuing
upgrades in encryption systems to combat circumvention. Containment approaches would seem
to continue the trend towards maximizing the power and financial returns to rights holders. They
would also tend to continue or exacerbate the distortions in information production and markets.
Since rights are increasingly held by distributors, this suggests that this trend comes at the
expense of both users and creators, who should be the primary focus of social value
considerations. Thus, there would seem to be little likelihood that containment approaches
would benefit society broadly.
The various second stage DRM approaches focus on control of use, rather than the control
of copying. As such, the approach is more in tune with digital media systems, and is inherently
more flexible. While these are positive aspects, they are offset by the fact that they still rely on
the imposition of a combination of legal and technological systems. These lead to a variety of
implementation and enforcement costs that negatively impact on information use and thus on the
creation of social value. A further issue with most of the second stage DRM approaches is the
degree to which they preempt existing rights, or extend coverage to, and appropriate, work that
had been freely accessible. The greater the appropriation of rights and content, the greater the
negative impact.
The initial disadvantage of “rights locker” and dynamic DRM approaches is that they
require a new way of thinking about ownership and use of information goods and services.
While it would seem to be valuable to foster such a rethinking in the long term (Bates, 2002;
Lessig, 2004), in the short term it is likely to be disruptive and have a strong negative impact on
social value. The long term benefits would seem to offset the short term costs, however, and
such approaches should not be simply dismissed because they do not fit current models.
One potential benefit of DRM is that it is flexible enough to create an intellectual property
rights system that can actually enhance not only social value, but also the value received by both
consumers and users of the system. This can happen with if usage rights are distributed between
information users and rights holders in a way that encourages socially beneficial uses while
protecting basic commercial value. There are ways to adapt both “rights locker” and public
license approaches to accommodate such a goal. This would be a change from current trends,
however, and thus will impose some redistribution of value. This will tend to come at the
expense of distributors, and since they are the group with political clout, this raises questions
about the political viability of shifting intellectual property rights mechanisms in that way. To
do so would require a greater awareness of the full range of values derived from the creation and
used of information (as opposed to only looking at commercial sales), and a more enlightened
legislative approach.
There would seem to several steps that could be incorporated into future intellectual
property rights law that would have a positive impact on social value. First, policy should
consider how various intellectual property rights impact not merely on rights holders, but on all
groups, including authors, distributors, consumers, and the public at large. Policy should be
based on how to maximize benefits broadly, rather than for a single group. Rights structures
should explicitly address what rights exist, and for whom, and should prohibit the usurpation of
those rights by license or contract. This calls for several significant shifts in approach and
attitudes. It calls for changing how we think of value and how it is created through the use of
information goods and services (in effect to internalize the externalities), to change focus from
maximizing the exploitation of existing value in the short term to a focus on maximizing the
creation of value in the long term, and to embrace digital media and information systems even at
the expense of existing industries. This is not an easy task.
On the other hand, there are a couple of short-term fixes that can at least slow the
negative impacts of current copyright and DRM proposals. States could try to minimize
implementation costs by facilitating standard-setting, although there is a risk that such standards
might not be the most efficient or least expensive alternatives. Another simple solution is to
impose partial or complete public licensing mandates, and collect and redistribute license fees
and levies to rights holders. Such systems may not efficiently appropriate value for rights
holders, or be able to maximize appropriability, but from a social economics perspective, this can
be a good thing. Such systems, particularly when based on a flat fee rather than a usage-based
levy, encourages wider creation and utilization of information goods and services, which is
socially beneficial. Flat fee systems are also less expensive to impose and monitor, minimizing
enforcement costs.
In conclusion, there is hope. Whether that hope is reasonable is debatable.
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