Using DRM more expensive than losses it’s supposed to prevent?

In case you haven’t heard, last week Sony officially announced a six month delay in the launch of the Playstation 3. Who cares you might ask? Well as far as the game console itself is concerned I don’t because I have no intention of buying one. However, from another perspective this case demonstrates again that the cost of trying to protect content with Digital Restrictions Management (DRM, and that is what it is regardless of the fact that the manufacturers call it digital rights management) may actually be greater than the privacy losses it is supposed to prevent. One of the most touted features of the PS3 is that it is equipped with a Blu-Ray drive, one of the two new competing but completely incompatible high-definition dvd formats (think VHS vs Beta for the digital age). I am not going to get into the whole HD-DVD BluRay fiasco in this post, other than to say that both new formats have been repeatedly delayed by disagreements over many factors including the DRM schemes to be used on the disks. When Sony made their announcement last week they stated the delay in finalizing the drm standard for Blu-Ray disks as the main reason for the delay. Sony said that the introductory price of the PS3 would be about 50,000 Yen in Japan (about $425US). They also expect to sell about one million units a month. So a six month delay means 6 million lost sales at that price amounts 20 over $2.5 billion in lost revenues. Game console makers also get a significant royalty from the game publishers (about $10-15 per game copy) for every copy of a game sold. Add to that all the extra revenue (and huge profit margins) on all the accessories like extra controllers, multi-taps, etc. Sony is looking at somewhere between $3-4 billion in lost revenues just from the 6 month delay. When you consider that this November will be a full year after the introduction of the XBOX 360, the real losses are probably closer to twice that much.

So Sony is willing to sacrifice somewhere between $3 and $7 billion in sales just so they can implement a stronger DRM system. Interestingly, the actual number of game sales lost due to piracy is actually very small because playing copied games on a PS2 requires actually physically modifying the console. The number of people actually willing to do this modification, is likely in the thousands at most, with the potential lost sales actually in the low millions of dollars, several orders of magnitude less than what the drm system is costing them.

Sony is shooting themselves in the head to avoid a purse-snatcher. Real Smart!

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