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Commentaries on this Media!

Secondary Markets and Digital Media

by Ethan Tussey

by Gregory Steirer for IN MEDIA RES

A secondary market exists whenever a good is available for purchase through channels not part of that good’s “official” distribution. Such markets provide two important economic functions. First, they increase the value of ownership. By enabling consumers to liquidate goods, they reduce the risk involved with purchase and allow for goods to function as investments. Second, they employ demand-driven, differential pricing that is better able to maximize economic returns and market penetration than the supply-side pricing of primary markets. Though the increased economic activity benefits the economy as a whole, greater market penetration can also benefit a producer if that good is either a gateway  to other purchases (an iPad or XBox) or part of a franchise whose value partially derives from exposure (a pop song or Marvel comic).

Despite the benefits secondary markets offer, however, most entertainment industries have viewed them as competitors, not collaborators. Hollywood companies in particular have seen the profits derived from secondary markets as a kind of theft and have attempted to restrain them. The turn to digital media thus represents a unique opportunity for these companies, as the digital media ecosystem offers the potential for the elimination of  secondary markets altogether.

This elimination occurs partly through DRM, which—though typically presented as a response to piracy—also prevents secondary markets. By requiring purchases to be linked to an account, media producers rule out any subsequent sale or trade. This technical limitation is supported by legal restrictions, embedded in TOS, which delimit acceptable use.

A less obvious threat to secondary markets has to do with supply. The current digital ecosystem employs a model of unlimited product supply. Under demand-based pricing, unlimited supply of a perfectly durable good should eventually drive prices down close to nothing. The possibility of an alternative DRM that enables secondary sales is thus ruled out in advance, since unlimited supply would result in near value-less content in both primary and secondary markets.

Unless the digital media ecosystem changes radically—embracing both limited supply and more flexible DRM—there will be no secondary market for digital media. Media producers will claim this as a victory. But it is unclear whether in the long run the lack of a secondary market will benefit producers or result in reduced economic activity and downward pricing pressure as the value of media ownership decreases. 

AbundaTrade commercial

digital trade and secondary markets

from abundatrade (2009)
Creator: abundatrade
Posted by Ethan Tussey