GILASTATE

Digital music offers an interesting example to evaluate the differences between product and service-centric perspectives on marketing.

What would a traditional product-centric marketing perspective say about a digital music file? Classically, it would say a music file is something the producer has infused value into through the encoding of music into the unique bits that are the file. The bits that make up the digital music file are the value and a customer receives that value from these bits once they possess and use them. Widgets are a great example of this viewpoint in action. While fictional, when you discuss a hypothetical product you can refer to it as a widget and then discuss all the processes to get the widget to the customers. Once the customers received the widget, they also received the value that was “infused” into the widget during the production process.

A service-centric perspective would view the digital music file as merely a conduit to connect the consumer with the producer of the music (think about a band). The band doesn’t just produce music files which contain value, but rather the music files provide a linkage where the consumer and band co-create value. The music file doesn’t actually have any value other than in its ability to optimize this connection between the band and the consumer of the band’s music.

An example may help with this somewhat abstract notion of value creation. My interest in a particular band is a complex set of interrelationships between the music the band creates and my musical preferences. I am not typically going to buy a song sight unheard. I need to have some idea that the band’s music is something I would like. I might think I would like their music because I heard it on the radio, liked their previous music, or heard a sample at the online music store. Basically, my opinion on a particular band is based on interactions with the band. These interactions can be asynchronous as is the case in listening to recorded music or synchronous when I attend a live performance. The purchasing and use of a particular music file is not a discrete event, but rather a single point in an extended set of interactions between me and the band that determine the value I receive from the entire co-creation process.

So, the digital file itself is only a conduit between the band’s performance and and my appreciation of that performance. While this distinction may seem overly complex, it actually has very real implications for how to market digital music products. I’ll discuss these differences in my next post.

So, is DRM evil? My opinion is maybe.

First off, you really have to consider who the potential evilness applies to. Take the case of music. While the music labels predictably trot out artists when they talk about the harm piracy causes, the story of whom gets hurts is significantly more complex. There is an interesting paper that examines this question with an economic focus called Rockonomics.

While I can’t given an adequate summary of the paper here, I’ll nevertheless try to some extent. One of the more interesting points in the paper is that most bands don’t make any money off of media (e.g.- CDs), but instead make most of their profit from touring. Only the most popular bands sell enough albums to make any money above and beyond the initial advance the band may get for an album. These advances are used to cover the production of the album, marketing, and associated activities. So, if you’re in a small band and can take advantage of the Internet and new technologies to reduce your up-front costs of producing, marketing, and distributing an album, then it would be in your best interest to avoid the whole record label business arrangement. Just let your music be free and then hope the consumers find your music, like it, and subsequently attend your concerts where you would have made all your money anyway (unless you’re U2 or another of only the most popular bands).

Of course, DRM doesn’t really have anything explicitly to do with piracy, so the preceding argument is only peripherally related to DRM- it is really more about trying to enforce payment for music or giving it away. Record labels obviously couch this all in terms of theft and piracy given they stand to lose a lot. They don’t make anything off of concerts, so protecting the sanctity of the current distribution model is critical to them. There probably aren’t too many Internet business models that end with them being better off, so DRM is evil incarnate to them.

So, it’s all good for the consumers and musicians? Even assuming we don’t care about the top artists (for example, we might think they are all sell-outs), there might be some broader issues at play that would hurt consumers and smaller bands. First, if you can’t find music easily (aka- marketing), then small bands can never develop a large enough fan base to support touring and the consumers never hear about that album that ended up changing their lives. Of course, the Internet and social networking tools might help here, but there doesn’t seem to be any clear evidence of this model working yet that I can see. Most bands still pursue the record label path, so they are caught up in that entire system and it is not a clean example of what is possible. The other potential downside is what happens to the albums that do require large up front costs. A smaller band could never cover the costs associated with a large production. Whereas, now, the labels can produce huge albums (cost-wise) assuming they think they can make that money back.

Beyond music, think about movies. As much as I like small bands and can see how the quality I get from a band is independent of how much the band spends up front to some extent (what did Surfer Rosa cost to produce?), I do occasionally enjoy movies with lots of sfx. While music and movies are different, the same copyright rules apply, so I doubt we could say DRM is evil for music, but not movies. We could also examine the same questions in regard to software.

Hence, I think DRM is maybe evil.