Archives for May 2003

Last week a company called FlexPlay announced Self-Destructing DVDs (SD-DVDs), which oxidize themselves – and so become unplayable – 48 hours after removal from their package. (The official name is, amusingly, “EZ-D”.) The idea is to provide the equivalent of a rental, while saving the consumer the trouble of returning the disk to the rental store afterwards.

This is an interesting kind of Digital Restrictions Management (DRM). Unlike most uses of DRM, this one does nothing to prevent copying or access to the disk. Consumers will be able to copy these DVDs as easily as any other DVDs. (Copying DVDs is often illegal, but many consumers are apparently willing to do it anyway.) SD-DVDs don’t do anything to make copying harder, and in fact their limited lifetime may create a new incentive to copy. While the use of DRM to (try to) control copying and access has gotten lots of attention, SD-DVDs are a nice illustration of the use of DRM to enable business models.

SD-DVDs may be a convenience for DVD-rental customers, but I doubt they will catch on, because consumers will find them offensive. Consumers hate planned obsolescence. The idea that a company would deliberately make a product worse, or make it wear out sooner than necessary, offends their sense of fairness. If Universal can press a regular DVD for one dollar, then why, ordinary consumers will ask, would they spend the same dollar to make a product that breaks? Fancy-pants economic arguments about efficiency and market segmentation won’t overcome this basic sense of unfairness.

Worse yet (and despite a claim to the contrary in FlexPlay’s press release), the nature of a chemical process like oxidation seems to imply that the disk’s decay will be gradual. Since DVDs use error correction, FlexPlay’s engineers can make the disk reliable for any desired period; but after that there will be an inevitable period of intermittent glitches as the disk gets worse and worse, until it becomes unusable. Seeing the decay, even if it lasts only for a short time, will only make consumers angrier.

The underlying problem is that because SD-DVDs will be sold for less than ordinary DVDs, they will draw consumers’ attention to the fact that ordinary DVDs are priced well above the marginal cost of producing them. That seems unfair to many consumers.

At this point, readers who are armchair economists (or real ones, for that matter) are raising their hands and bouncing in their seats, eager to point out that marginal-cost pricing isn’t sustainable in the movie business, given the high fixed cost of making a movie and the very low marginal cost of distributing a copy of it. That’s true, but I think consumers’ sense of fairness is based on a different kind of market in which variable costs of production dominate fixed costs.

As long as it seemed inherently expensive to manufacture and distribute a copy of a recorded movie, consumers tended not to notice that the copy was priced above marginal cost. As marginal cost approaches zero, the gap between marginal cost and price becomes much more apparent, and consumers increasingly conclude that the studios are ripping them off.

I see this as a big problem for the studios. The last thing they should want, at this point is to introduce a product like the Self-Destructing DVD that heightens consumers’ sensitivity to “unfair” pricing.

UPDATE (12:25 PM): Eric Rescorla has an interesting follow-up about consumer psychology. He also points out, in a separate post, that it is possible, at least in theory, to make an SD-DVD that fails cleanly and suddenly, rather than gradually.