Limited Edition Digital Music

Friday, April 24, 2009

Limited Edition Digital Music

Albert wrote an interesting post on “Limited Edition Digital Music” that caught my attention this morning. Here’s his post first, and then my response below.

continuations:

This is another post in thinking out loud about the economics of abundant and digital goods. In particular, I am interested in mechanisms that allow producers to recapture some of the consumer surplus even when the price for (a version of) the good is zero.

In photography, there is a well established difference between limited edition prints (sometimes a single one) made by the artist and reproductions of the photograph in catalogs or online. I believe it is possible to create a similar mechanism for digital music. An artist could take something like the original recording of a song and/or a track specifically remixed for this purpose an sell it in a limited edition model.

How would that work? What identifies the limited edition print of a photograph is usually a combination of serial number and signature by the artist. This could be recreated for digital music using a service that encodes both the serial number and the artist’s signature (which might take the form of a public key) into the music file. Now unlike the print, someone could make a perfect copy of that file. But even for prints this is an issue and so the added requirement for value tends to be some external documentation, such as a sales receipt. This will be critical for limited edition digital songs. The easiest way to do this would be for the distribution service itself to keep track of information about who has actually paid for a limited edition copy. One particularly elegant way of doing this would be by allowing the purchaser to specify a URL where the file will live (more on that below). It is not strictly necessary, but as a further mechanism this purchase information could also be encoded on the fly in the file itself.

It is important to note that this is completely different from DRM. The buyer could freely transfer the file between devices, etc. They could put it up on their own web site and stream it. None of this would reduce the value to the purchaser because it does not increase the number of authorized copies that have been sold and any claims of having an authorized copy can be compared against the sales records. Having the artist’s site publish out the list of valid URLs would make this especially easy to verify for copies published on the web.

An artist could choose to keep the edition really small and auction off only a few or make it larger and set a fixed price. All the while the artist can continue to distribute unsigned copies of the file for free! With the URL mechanism, purchasers can resell the limited edition file simply by transferring control of the associated URL. In fact, that way someone could build a collection and eventually sell the entire collection.

I have written this post in terms of music, but I believe that a similar approach could apply to any digital art (photography, design, movies, games) and possibly even to news.

My $0.02: Maybe this is just a cultural issue (failure of my imagination) since I’ve never seen a signed/limited MP3 in this way, but I wouldn’t put much value in a “limited” good that is strictly digital because I know it can be perfectly copied (as you mention above), even if such a copy is not authorized by a receipt or valid code.

However, I agree with the idea of music artists selling limited additions. Trent Reznor has done this successfully a number of times, but he’s done it in situations where the digital good (mp3) is free (since it will be free on bittorrent an hour after release anyway) and then the limited edition is a signed set of LPs or a CD with a with sweet liner note art or some other physical good which cannot easily be duplicated. He’s had more success with this model of monetizing music than with the “radiohead-esque” pay-what-you-think-its-worth donation model, so you’re definitely on to something here.

As you mention in your post, photographers do this idea of limited edition physical (not digital) goods too today. The limited edition prints in photography are physically printed and signed, they’re not transferred digitally. While it could be copied (high resolution scanner and high qualtiy printing press), such a copy will always be lossy as it transitions across the digital/analog barrier and it will always have some marginal cost. I think my hangup is around the theoretically perfect ability to copy a digital good at zero marginal cost.