Sicker, Ohm and Gunaji (2007)

Source Details

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.
Year:	2007
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:	Yen (2003) Owens and Akalu (2004) Lin et al. (2005) Sohn (2006)
Discipline:	L82: Entertainment • Media O31: Innovation and Invention: Processes and Incentives O33: Technological Change: Choices and Consequences • Diffusion Processes O34: Intellectual Property and Intellectual Capital
Linked by:

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:	Quantitative Collection Methods Survey Research (quantitative; e.g. sales/income reporting)
Data Analysis Methods:	Quantitative Analysis Methods Quantitative content analysis (e.g. text or data mining)
Industry(ies):	Sound recording and music publishing
Country(ies):	United States
Cross Country Study?:	No
Comparative Study?:	No
Literature review?:	No
Government or policy study?:	No
Time Period(s) of Collection:	2007
Funder(s):

Abstract

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

Coverage of Fundamental Issues

Issue	Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

Coverage of Evidence Based Policies

Issue	Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Datasets

Sample size:	66
Level of aggregation:	Individual
Period of material under study:	2007