The South Korean P2P file-sharing service Soribada revealed more details of its plans to convert to a paid service after losing a legal appeal against the Korean music industry last November. In an agreement with the Korea Music Producers' Association (KMPA), Soribada will charge users KRW 500 (US $0.51) for DRM-protected music tracks and KRW 700 ($0.72) for non-DRM-protected tracks. Soribada, one of several Korean P2P networks in discussions with KMPA, will use acoustic fingerprinting technology to control usage of some files on the network.
This licensing agreement provides a rare real-world data point into the economic value of DRM, complementing market research done by Jupiter Research (2003), the INDICARE project (2005), and Marc Fetscherin at Harvard (2005).
The above figures can be read in a number of ways. Most importantly, they reflect the idea that users can do less with DRM-protected tracks than with unprotected ones, including some things that provide a better user experience and/or are allowed under Korea's copyright laws.
But beyond that, those figures imply that KMPA is assuming a piracy rate for unprotected tracks of 40% relative to the piracy rate for DRM-protected tracks. Put another way, if KMPA assumes almost zero piracy for protected tracks, then it is assuming that for every unprotected track purchased, 0.4 tracks are illegally copied. We would be interested to know if there were any quantitatively analytic basis for that 40%.
Another way of reading those figures leads to a rather stunning result concerning the economic value of DRM compared to its cost of implementation. KMPA is implicitly estimating the economic value of DRM to be about 21 cents per track. For an avid music fan who downloads the equivalent of two albums' worth of tracks per month, that's $50 per year, or $150 per device if one expects it to be used for 3 years.
In this case, the law enables KMPA's members to pass this cost on through Soribada to users. But if that were not possible, then $150 represents the upper bound of how much the music industry should be willing to pay for DRM that really works. This is an absolutely staggering amount, particularly when compared to the unit cost (COGS) of a portable music player, and even when compared to levies that some countries have passed on PCs or music players.
It is quite possible that the global music industry could find a way to design a DRM system that substantially decreases piracy, while providing a decent user experience, for a subsidy amounting to a small fraction of that $150, even when amortized R&D costs are figured in. This reasoning ends up in one of two places: either the $0.21 difference between DRM-protected and unprotected tracks is a poorly-chosen amount, or the music industry's most rational course of action should be to subsidize DRM. More data points and more experience with pricing schemes like that of KMPA and Soribada will tell us which one is true.
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