Article about Music Piracy and Pricing Wins 2010 AMA Best Paper Award

Fernando Machado UCP 

"Don’t Think Twice, It’s All Right: Music Piracy and Pricing in a DRM-Free Environment" (Journal of Marketing, 74 (2), 40-54) is the title of a paper that won the best article award published in 2010 from the American Marketing Association (AMA) Innovation, Technology and Interactivity SIG. The article was written by Fernando S. Machado, an associate professor at Católica-Lisbon School of Business and Economics and co-coordinator of the dual degree doctoral program in Technological Change and Entrepreneurship, in the scope of the Carnegie Mellon Portugal Program, with Rajiv Sinha, from the Arizona State University, and Collin Sellman, doctoral candidate in Marketing.

In the article the authors recommend a model that conceptualizes and estimates the concept of hardcore piracy in an attempt to resolve this apparent paradox. On the abstract the authors explain that “based on two large empirical studies and a validation exercise with a large sample of more than 2000 college students, the model results indicate that the music industry can benefit from removing digital rights management (DRM) because such a strategy has the potential to convert some pirates into paying consumers.” In addition, “a DRM-free environment enhances both consumer and producer welfare by increasing the demand for legitimate products as well as consumers’ willingness to pay for these products.” Therefore, the authors of the article find that producers could benefit by lowering prices from currently observed levels.” The article concludes with a discussion of the practical implications of the findings for managers within the music industry.

Question (Q): According to this paper, what were the Digital Rights Management (DRM) restrictions on the demand for music downloads?
Answer (A):
Unlike what common sense would suggest, our results indicate that DRM restrictions have had a negative impact on legitimate music demand. In particular, we show that a move to a DRM-free environment can convert some pirates into paying customers and be beneficial both for consumers and for the music industry.

Q: What is the real impact of the article findings?
A:
The findings of this paper can potentially have a significant impact because we show that the copyright protection and pricing strategies adopted by the music industry have been sub-optimal, both for the industry itself and for the society at large. Curiously, not long before we concluded our study, the music industry changed its DRM policy in a direction that is more consistent with our results.

Q: Is it the first time that a Portuguese professor obtains this honor?
A:
To the best of my knowledge it was the first time that a Portuguese professor received this particular award. However, other Portuguese scholars in the field of marketing, such as Professors Miguel Villas-Boas (U. C. Berkeley) and Lopo Rego (U. Indiana) have received important awards and a very high level of recognition for the outstanding quality of their work.

Q: What is the importance of this award to you?
A:
Although research is a very rewarding activity in itself, often the researcher’s efforts appear to result in not much else than in getting the attention of a tiny audience of experts. Therefore, I regard this prestigious award as an important indicator of the impact of our research, as well as a strong motivating factor for future work.

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Fernando S. Machado is an Associate Professor at Católica-Lisbon School of Business and Economics, and the co-coordinator of the dual degree doctoral program in Technological Change and Entrepreneurship, in the scope of the Carnegie Mellon Portugal Program. He holds a Ph.D. in Agricultural Economics from the University of Reading, UK, and two B.Sc.’s in Business Administration and in Economics from the Catholic University of Portugal. Formerly he was Associate Dean and Director of Católica-Lisbon’s Center for Applied Studies. His current research interests revolve around digital piracy, innovative pricing mechanisms and the analysis of consumer preferences for both market and non-market goods. His research has appeared in international journals such as the Journal of Marketing, Marketing Science and Environmental and Resource Economics.

January, 2012