Law & Society Blog

According to Endgadget:

Microsoft’s new portable audio and video player will have a screen that’s “bigger than that of the iPod video” (which isn’t really saying much) and built-in WiFi … To attract current iPod users Microsoft is going to let you download for free any songs you’ve already bought from the iTunes Music Store. They’ll actually scan iTunes for purchased tracks and then automatically add those to your account. Microsoft will still have to pay the rights-holders for the songs, but they believe it’ll be worth it to acquire converts to their new player.

Lock-in effects provide critical competitive advantages to digital products. Some of the most successful companies selling digital products achieve and maintain lock-ins with a combination of technology (DRM, proprietary interfaces), laws protecting protective technologies (DMCA), and multiple layers of IP protection (patents, copyrights, trademarks, trade secrets, license agreements). The main technological threats to locked-in content have so far been open standards (e.g., mp3). Microsoft’s announcement, for the first time as far as I can tell, shows another way: paid migration of content from one DRM regime to another. Company A is essentially offering to internalize the switching costs that company B, through a particular combination of technology and law, imposes on its users. That cost is equal to the market power held by firm B. Microsoft’s move could spark inter-DRM (software/hardware/license) competition on a large scale. If nothing else, a Microsoft switch (back?) campaign should provide us with a fascinating natural experiment, quantifying the monetary value of lock-in effects. If the migration results in the duplication of an existing song library, then there’s also a consumer benefit in the form of an insurance effect. Access to content locked into DRM-B depends on the continued existence of a software/hardware/license combination provided by the DRM-B owner. Having the same content locked into DRM-A provides at least another avenue of access.

What gets me really excited, though, is the combination of a music player and WiFi. Suppose that all WiFi enabled players within a certain radius could connect to each other and swap songs based on user-defined preferences. For example, I could ask to receive the most popular tunes around me (or the least popular, on a contrarian setting, or anything in between, maybe based on a Pandora-type indexing system). The number of songs that I can receive would depend on the number of purchased songs that I choose to share, providing me, of course, with an incentive to purchase more songs. For purposes of protecting the business model, the songs that I receive via WiFi from others cannot be downloaded from my player to the computer, but they can be purchased or unlocked at a discount. Imagine delving into a new city with such a device, or just talking a long walk from Battery Park to Columbia. Each neighborhood would have its own sound.

NOTE: Cross-posted at Antitrust Review.

Technorati Tags: lock-in, intellectual property, ipod, microsoft

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