Pricing digital content with DRM mechanism

Abstract

The Internet and file sharing technology (such as P2P network) significantly alleviate the content distribution cost. However, better digital content distribution also means that people can acquire any digital contents easier without purchasing the digital rights. Consequently, digital content providers utilize DRM (Digital Right Management) technology to inhibit the diffusion of pirating.In this paper, we proposed an analytical model to examine the optimal DRM protection and pricing strategies of digital content. We showed that the structure of the digital content industry (the relationship between content and platform providers) and content quality play important roles in the development of these strategies. DRM protection level decreases as the content provider and platform provider are integrated. As a result, more pirating activities occur. While losing revenue from selling content, the merged company recovers this loss and gains from selling platform at a higher price. Higher content quality will always strengthen the adoption of DRM when content and platform providers are operated independently. However, if both providers are integrated, higher content quality may increase or decline DRM protection level. In addition, we observed that providing content with higher quality will increase (decline) both the sales of legal content and corresponding revenue when content quality is sufficiently high (low).