The emergence of online digital media sales services has given rise to the issue of online digital rights management (DRM). This paper presents a novel approach to online digital rights management and video content protection through the use of adaptive perceptual degradation based on usage. The proposed system facilitates the sharing of purchased digital videos between users while offering an incentive for users to acquire original video content through legal means. This is accomplished by adaptively degrading the quality of the digital video content based on a number of usage factors such as the number of times viewed and the number of copies made. Experimental results demonstrate the effectiveness of this system in striking a balance between the freedom of file sharing and content protection.