Sicker, Ohm and Gunaji (2007)
|Sicker, Ohm and Gunaji (2007)|
|Title:||The analog hole and the price of music: An empirical study|
|Author(s):||Sicker, D., Ohm, P., Gunaji, S.|
|Citation:||Sicker, D., Ohm, P., Gunaji, S. (2007). The analog hole and the price of music: An empirical study. Journal on Telecommunications and High Technology Law, 5, 573-587.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|About the Data|
|Data Description:||A survey itself conducted using Zoomerang, an Internet survey application.The survey collected responses from 70 participants. Of those, 66 completed the music portion of the survey.|
|Data Type:||Primary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||No|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
We present the results of a series of surveys of college-aged consumers of music exploring their willingness to pay for digital downloads of music and measuring the impact of the so-called analog hole. The analog hole refers to a perhaps - unavoidable vulnerability of most digital rights management systems. In short, because people cannot consume digital information directly, every device that performs digital content must convert the digital information into an analog signal, which is very difficult to keep from being copied. Although the analog hole has been widely decried by content providers, surprisingly little is known about fundamental aspects of how it operates. Can average users exploit the analog hole, or is this limited to sophisticated users? Does analog hole copying significantly degrade the quality of music or video? Will people pay for music that isn't a perfect digital copy? Intuitions and guesses abound, but nobody has ever conducted a study to answer these questions. We have. Although our surveys' sample sizes were too small to come to statistically significant conclusions, we did discover several interesting results including one tantalizingly specific result: What's the analog hole worth? Based on our survey, twenty-four cents. That's how much less our respondents were willing to pay for a music track when a perfect digital copy was replaced by an analog hole copy. Although our results need to be replicated on a larger scale, they suggest many conclusions that have never before been proved: people are willing to pay for less-than-perfect analog hole copies of songs; people will pay much more than half the price of a typically-priced digital music file for its degraded alternative; and even self-avowed "pirates" show a willingness to pay for digital music, albeit at prices well below today's market standard of ninety-nine cents a song.
Main Results of the Study
- The study shows that consumers are willing to price differentiate on quality and that would-be pirates are willing to pay for content, albeit at a significantly reduced price. These results all point to lost opportunities for the music industry.* Price discrimination based on quality can increase sales, profits and seller surplus. The community of pirates may be “brought back into the fold” if the 80% who are willing to pay can find a market.* Furthermore, although analog hole exploits tend to lead to detectably degraded copies, many ordinary consumers will not notice the difference. This also supports industry fears that analog hole copies may serve as a market substitute for DRM-protected digital copies.* The survey sample sizes used in this study were not large enough to reach external validity for applying these results to the general population. Looking forward, a next step would be to execute a similar survey to the one administered for this paper but on a much larger scale.
Policy Implications as Stated By Author
Alternative pricing models might be able to capture individuals who are willing to pay from 20 to 40 % of an illegal download.
Coverage of Study
|Level of aggregation:||Individual|
|Period of material under study:||2007|