Both are bad but watermarks less bad in some ways and more bad in others.
Current forms of DRM are really bad, it gets in the way of legitimate usage, promotes vendor lock-in and a host of other nasty things. On top of that, it doesn't really work that well since cracks are often released. However, even with the option to remove it, customers are placed at risk of downloading dubious software to remove DRM in order to use products in otherwise legal ways (not saying all crack sources are dubious but some are).
Watermarks avoids the problem of preventing format conversion or playing media on a device that whilst supporting standard formats doesn't support the custom DRM scheme used by whichever retailer. That on the face of it is good for the consumer and good for the producer since there's still an element of protection.
Downside to watermarks is, it can be used to identify you. Hopefully any company using watermarks uses non-personal information for the ID and retains a way to match that internally instead. However, if your device is stolen, computer hacked or someone has a grudge against you and decides to replace watermarks from a pirated copy with yours and re-upload it (far fetched perhaps, but technically possible) innocent people could be finding themselves fighting either a court case or paying the bribe letters of "pay us £xxx or we'll take you to court"
Reason I favour watermarks over DRM though, is that for all we know, those using DRM are also watermarking too. One evil is better than two, especially if it's the one that at least provides you a means to use the product how you want (within reason of course)