Thoughts on DRM

“Why the record industry just doesn’t get it.”

Wednesday, February 14, 2007

What is DRM?

Digital Rights Management (DRM) is used for many things, including music, video and even some software purchases. DRM has received much attention in the music industry lately, so this article will be focused on the music industry’s use of DRM. The concept behind the use of DRM is easy enough to understand. DRM provides a means of enforcing the usage of music purchased with this DRM “protection”. That is, DRM protected music is registered to a specific individual. That individual is typically allowed to register several devices that the music may be played on. If one of the registered devices (typically a computer) is retired, then the owner of the music must then “unregister” the old computer and “register” the new computer. The music will not play on a device that is not “registered” by the owner. Each owner has a limit of how many devices he/she is allowed to register, depending on the specific DRM implementation. The goal of DRM is to both prevent piracy and prevent the unauthorized use of music by the people (customers) who legally pay for said music.

What’s all of the controversy about?

There are many valid reasons for consumers to object to DRM. These reasons are summarized below:

1. Enforcing DRM is treating the legitimate customers as criminals.

Legitimate customers are treated like criminals with the assumption that they all intend to give away their music collection. As such, legally purchased music with DRM is hobbled with limitations on how the music can be used. Meanwhile, those who pirate music are not crippled with these same restrictions. Yet, the record companies can’t seem to understand why music piracy is so rampant.

2. There is no standard for DRM and likewise, interoperability has become a major issue for consumers.

There are multiple implementations of DRM and none of them are compatible with each other. Apple sells the most digital music by a wide margin (> 80% market share). Likewise its form of DRM is the “standard”. But, Apple doesn’t license its DRM to other vendors. Microsoft also has its form of DRM, but to date, it’s been a dismal failure. What’s worse is that Microsoft now has 3 forms of DRM, each version is apparently incompatible with the other. Their first attempt was “Plays for Sure” (aka Janus) which was available to all vendors. Then, they came up with a separate DRM exclusively for their Zune product line. This was an attempt to copy Apple’s business model. It also had a side affect of upsetting Microsoft’s “partners” in bed with the “Plays for Sure” model. Now, they’re coming out another form of incompatible DRM called “PlayReady”.

http://news.com.com/Microsoft+launches+PlayReady+DRM+system/2100-1039_3-6158553.html?tag=nefd.top

Really, what the hell are they thinking? I can only guess that Microsoft wants DRM in general to fail so they are contributing to this effort by obfuscating the interoperability issue as much as they can.

3. DRM often restricts the way music files may be used.

Some application software (like movie editing, etc.) will not allow the use of “protected” music files because this usage is in conflict with the record company’s defined usage for their music.

4. DRM is not effective.

It’s a simple fact; no form of DRM has ever been immune to hackers. The DRM is cracked, the vendors responsible for the DRM try to revise the DRM, and then the hackers get working on the next version. Rinse, repeat.

5. The majority of music purchased is not crippled with DRM.

The record labels insist that DRM is required. The alleged fear is that if digital copies of their music were left unprotected, they’d be pirated on mass. It would be as if they just opened up the floodgate to piracy. Of course, this claim makes absolutely no sense given the fact that roughly 90% of the music sold by the record companies is on CD and is likewise inherently unprotected, not to mention available at a higher quality. Sure, some record companies have tried to protect CDs, but all attempts have failed. The most notable failure was Sony’s root kit debacle.

http://en.wikipedia.org/wiki/2005_Sony_BMG_CD_copy_protection_scandal

6. DRM does not prevent piracy, it actually encourages it.

Traffic on the peer to peer (P2P) networks should indicate that piracy is alive and well. Any song available for legal download is also readily available for illegal download. Consumers want DRM free digital downloads. The record labels don’t provide consumers with the product they want. DRM-free music files (i.e. what the consumers want) do exist on the P2P networks for free. Yet, the record labels don’t understand why so many people pirate music. By offering an inferior product and charging a premium for it, the record labels are actually encouraging piracy.

The record companies want people to keep buying CDs. This way, you purchase an entire album rather than just the one song you really want. I’m guessing that the record labels want digital downloads to be inconvenient enough for you to buy the CD instead. The problem is, consumers want the option to just purchase a single song. This is the digital age, the “genie is out of the bottle”. Gone are the days where the record companies have full control over what they sell you. If the product consumers want is not offered through legal channels, the majority of people will resort to illegal channels of obtaining their music. The best way to fight piracy is to compete with it by providing a superior product for a modest premium.

The tides are turning…

Recently, Bill Gates started speaking out against DRM vocally, despite Microsoft’s actions to actively support it by all means possible. While we all understand that it’s necessary to support DRM for the time being if you wish to sell music from the major labels, but Microsoft has gone above and beyond that level of draconian philosophy with regard to music sharing in it’s Zune product, not to mention the level of DRM built into its Vista operating system.

The following is a summary of Gates’ comments on DRM:

Gates said that no one is satisfied with the current state of DRM, which “causes too much pain for legitimate buyers” while trying to distinguish between legal and illegal uses. He says no one has done it right, yet. There are “huge problems” with DRM, he says, and “we need more flexible models, such as the ability to “buy an artist out for life” (not sure what he means). He also criticized DRM schemes that try to install intelligence in each copy so that it is device specific.
His short term advice: “People should just buy a cd and rip it. You are legal then.”

http://www.techcrunch.com/2006/12/14/bill-gates-on-the-future-of-drm/

Bill Gates isn’t calling for the end of DRM, but he’s acknowledging that it isn’t working in its current form. While that is very much just pointing out the obvious, it’s also acknowledging the criticism voiced by consumers which is something the record companies have yet to do.

Of course, it’s difficult not to be skeptical of anything Bill Gates says. If history has taught us anything, he’s a very calculated person that says things for a reason. He’s not attacking DRM in concept; rather, he’s attacking DRM in its current form. That is, Gates wants DRM because it’s a means of locking in users. The more songs you buy in one form of DRM, the more likely it is that you’ll be to vested in that form of DRM to ever switch to a competitor. Right now, Apple’s FairPlay DRM is the dominant player, by a long shot (> 80% market share). Given that perspective, it’s not hard to imagine why Bill Gates is not happy with DRM in its current form.

Further evidence that the tide is starting to turn come in the form of EMI’s decision to test the waters with a few DRM free songs. This is likely the prelude to a bigger step in that direction. Once one of the top 4 record labels does this with a large collection of music, the others will follow if (when) it proves successful.

http://www.engadget.com/2006/12/07/emi-music-starts-selling-drm-free-music/

Pressure on Apple…

Several countries are putting pressure on Apple to license its FairPlay DRM scheme to other vendors.

http://arstechnica.com/news.ars/post/20070122-8676.html

In principle, the idea is that Apple’s DRM is the de facto standard due to Apple’s music sales performance. Likewise, if Apple licensed it’s DRM to other companies, the interoperability issue would be solved. While I agree that Apple should license its DRM to other companies, I also believe that this is a waste of effort as it changes nothing. DRM is still bad for consumers. Opening the licensing of one DRM is not going to force companies to adopt it, nor is it going to fix other interoperability problems with other DRM schemes. So, while it might help somewhat, it’s not going to fix the problem. To use an analogy, it would be like putting a band aid on a major wound that requires stitches and perhaps surgical attention.

Apple responds to the pressue…

In an uncharacteristic move, Steve Jobs wrote an open letter to the music industry.

http://www.apple.com/hotnews/thoughtsonmusic/

Apple brokered the first deal with the record labels to sell music on-line. Jobs provides background information explaining how Apple must license the rights to sell music through the record companies. It is the record companies that dictate the requirements of how the music will be sold. DRM was and still is a requirement for the privilege of selling the record label’s music on the iTunes Music Store (iTMS). Jobs goes on to layout three scenarios for the future of on-line music sales through the iTMS.

1. Continue the current course. Apple’s music sales will only play on iPods, Microsoft’s music sales will only play on Zunes, Sony’s music sales will only play on Sony players, etc. Apple’s statistics indicate that on average, 3% of the average iPod’s music is purchased through Apple’s store. Therefore, there is no real issue of vendor lock in.

2. The second alternative is for Apple to license FairPlay to other vendors. Jobs claims that Apple is contractually obligated to fix cracks in its DRM in a very short amount of time. This is currently done by rolling out changes to Quicktime/iTunes, iPod firmware updates and changes to Apple’s music store. By allowing other vendors into this equation, Apple feels it wouldn’t be able to meet its contractual obligation to fix the cracks in a timely manner if it had to roll out a solution to all of the other vendors as well.

That’s a reasonable argument, but I’m not sure it holds water. Microsoft has had its “Plays for Sure” DRM cracked and worked with other vendors on the fix. If Microsoft can do it, then surely Apple can do it. If necessary, in light of new requirements, Apple should renegotiate the timeframe it has to make such fixes.

3. Finally, and most importantly, Jobs recommends doing away with DRM entirely.

“The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.”

Jobs is clearly laying the DRM blame on the record labels and making it clear that Apple would rather not have DRM at all. Many were starting to believe that Apple was the one pushing the DRM because it gives them vendor lock in. Jobs clearly put that notion to rest.

On the other hand, some have noted that at least some small percentage of Apple’s current music library belongs to the independent labels that do not require DRM. Some music stores such as emusic.com do not use DRM and only sell music that does not require DRM. If Apple truly does oppose DRM, they should make music sold from the independent labels as DRM free downloads. This just might start to embarrass the other labels to follow suit.

Criticism about Apple’s position…

Just as Bill Gates can’t make a comment without people looking for motives behind what he says, the same applies to Steve Jobs. In this case, Apple has much more influence on the music industry than Microsoft does. As expected, the conspiracy theorists are out in full force.

Rather than rehash what’s already been said, I highly recommend reading John Gruber’s Daring Fireball blog on this topic.

http://daringfireball.net/2007/02/command_option_control

In a similar vein, Bill Thompson of the BBC demonstrates his ignorance on the issue.

http://news.bbc.co.uk/2/hi/technology/6353889.stm

His first paragraph starts off like this:

“For a company with a tiny share of the computer market and an increasingly perilous first mover advantage selling portable music players Apple punches well above its weight in coverage of its every move.”

So, Apple’s staggering lead in music related sales (both the iPod and the iTunes Music Store) are in danger and Apple’s lead is only due to its “first mover advantage”? Really? How many years has Apple had this lead? Whatever… At least Thompson does us a courtesy of demonstrating both his anti-Apple bias and his ignorance right up front.

Thompson goes on with one rant after another about how Apple has been getting lots of attention in the media. He’s apparently upset that Apple’s Macworld event completely silenced the general industry’s CES event that occurred in the same timeframe. He goes on about the announcement of the settlement with the Beetles (Apple Corp. trademark issue), followed by a rant about the Apple commercials on TV. So, what are you recommending Thompson? Do you recommend Apple or any other company try to stay out of the media? Yeah, that’s good for business.

Then, Thompson takes issue with the fact that the current version of iTunes doesn’t work properly with Microsoft’s newly released Vista operating system. He suggests that Vista has been around for a while in beta form, therefore Apple had plenty of time to prepare for Vista’s release. Okay, that’s a fair comment, but it’s not like this is something that’s unique with Apple. Why doesn’t Thompson mention the numerous other third party programs that have issues running on Vista? Similarly, how long has Apple been shipping Intel based Macs? Where is the Intel native Microsoft Office? Surely, Microsoft has had ample time to take care of this as well, right? It’s funny how he never mentions that.

Then, Thompson goes on to make a point of how Apple refuses to license its DRM and in the same sentence he contradicts himself by noting Motorola’s iTunes phone.

Better yet, try to follow this bit of logic…

“Jobs also said that Apple would stop using DRM in an instant if they could.
I don’t believe him. If Apple switched off Fairplay then they would probably sell a lot more songs, on which they make very little money, and a lot fewer iPods, on which they make a lot. I don’t buy songs from Apple’s store because I don’t like DRM. “

Apple has made no secret that the iTunes Music Store is marginally profitable. That said, the iTMS has never been a driver for sales of the iPod. Statistically, only 3% of songs on the iPod are from the iTMS. It’s just the opposite. Strong sales of the iPod fuel sales of the music store, not the other way around.

“But Jobs can see which way the wind is blowing, and he can see that the record companies are finally tiring of their painful, expensive and ultimately unsatisfactory relationship with DRM.”

Okay, so now Jobs was speaking out against DRM because he sees which way the wind is blowing. The direction of the wind is much more related to the pressure Apple is under to license its DRM. Apple doesn’t want to do this and instead prefers no DRM. This should be clear from Apple’s “Rip. Mix. Burn.” ad campaign years ago when iTunes was introduced. I certainly do believe the tide is beginning to turn in favor of dumping DRM. However, this isn’t a new direction for Apple, nor could it possibly happen without pressure from Apple to make it happen. Apple had to agree to DRM in the beginning. Now that Apple has sold more than 2 billion songs on-line and commands greater than an 80% market share of legal music downloads, Apple has a bit more clout in terms of making the record labels change course.

“Jobs has to position Apple for this brave new world, and he knows that his charisma is such that if he rushes to the head of queue and claims to be leading the charge then some, at least, will believe him.
Sadly he’s likely to be crushed under foot by those who really understand the music business and didn’t sell their souls to the record companies back in the days when they believed in DRM.”

Thompson is trying to paint a picture that Apple is not reacting to the legal pressure it’s facing with regards to FairPlay licensing, but rather it’s trying to pretend it’s leading the pack with the anti-DRM movement. Better yet, Thompson suggests Apple sold its soul to the record companies and doesn’t “really understand the music business”. Well, if nothing else, it’s always amusing to read the thoughts of a bumbling journalist that apparently hasn’t been following the events of the music industry. Apple apparently doesn’t get credit for being the first company to broker a deal with ALL of the record labels to sell legal music downloads. Apple doesn’t get credit for creating the best portable music player, nor does it get credit for creating the best music jukebox software, nor does it get credit for creating the business model for an on-line store and integrating all of the above properly. The rest of the industry is following Apple, but Apple doesn’t understand the music industry. Apple is about to be “crushed under foot”, despite leading the pack with > 80% market share for on-line music sales and no sign of weakening after all these years.

The Empire Strikes Back…

Not surprisingly, Edward Bronfman jr., head of Warner Music Group disagrees with Steve Jobs’ position.

Warner Music has come out against the proposal, which would allow consumers to purchase digital music downloads without DRM. In an earnings conference call late last week, Warner Music CEO Edgar Bronfman said the idea was “completely without merit.”

http://www.newsfactor.com/story.xhtml?story_id=031001SMGCWF

I suppose if you’re the head of a major music label, you’re allowed to just say something is “completely without merit” without actually providing an explanation. This is sort of the response one would expect from a third grader who’s losing an argument badly. Considering the reasons for dumping DRM have been logically spelled out and do make sense, Bronfman is coming up short in the way of logic.

In another event, he goes on to say…

“DRM and interoperability are not the same thing,” Edgar Bronfman Jr., chairman and CEO of Warner Music Group, said in a speech at the 3GSM World Congress in Barcelona on Wednesday.
“We believe in interoperability,” he said. “Consumers want it and should have it. We at Warner, and I hope the rest of the music and content industry, will make it as easy as possible to achieve interoperability.”

http://playlistmag.com/news/2007/02/14/warner/index.php

Great, so he claims that DRM and interoperability are not the same thing. Yet, he offers no solution to the current problem. It’s clear he doesn’t want to back down from his insistence for the use of DRM, despite its lack of effectiveness. He also acknowledges that there is an interoperability problem, but he doesn’t offer a solution. He’s either not very bright or he’s hoping his audience isn’t very bright. Mr. Bronfman, you’re not making a convincing argument. Give up on the DRM issue already.

Conclusions

DRM is an ineffective means of preventing piracy, particularly in the context of the music industry. Between the sales of music on CDs (which are DRM free) and the wide spread use of P2P networks, DRM cannot possibly achieve the goals it’s designed to do. Worse, it’s bad for consumers as it imposes unnecessary restrictions on the usage of music purchased in this fashion. As a result, DRM not only deters legitimate music purchases, but it actually encourages the piracy of music.

The best way to prevent piracy is to compete with it. This can be accomplished by offering a product consumers want (high quality, DRM free downloads).

There is evidence that the tide is beginning to turn in favor of abandoning DRM. One of the four major labels will have to take the first step. EMI is dangerously close to doing so already. Apple is under pressure to license its FairPlay DRM, but instead, it’s challenging the music industry to acknowledge DRM is a failure. The music industry continues to see declining revenue and this trend will likely only continue as long as the record companies are not producing a product that consumers want.

One thing is for certain, this issue won’t be resolved until the record companies start to take a practical look at the DRM issue and put their egos aside. As it is, annual revenue is projected to decline over the next few years and digital music downloads are not currently making up the difference. I believe this is largely due to the use of DRM and thereby presenting consumers with a product they do not want. While I don’t advocate stealing music, I certainly do understand why it’s the most popular method of obtaining music these days.

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6 Responses to “Thoughts on DRM”

  1. Siddiq Bello Says:

    Great summary!

  2. Siddiq Bello Says:

    Well to be fair this isnt a summary so much as a compendium? overview? rant? ahhh hell, what ever it is, its good!

  3. technicalconclusions Says:

    Siddiq,

    Thanks for your comments! I’m glad you enjoyed the article. My blog entries tend to be long in nature. You’re right, it’s a mix of background, facts, opinions and a fair amount of ranting. But, that’s the purpose of a blog I suppose. It’s not intended to read like an article in the New York Times.

    This is a new blog. I’m just testing the waters a bit right now. There are many good articles on any given topic. Each article helps one form an overall position. I’m the type that likes to be able to refer to one location when asked about something. Hopefully, others will find my blog useful. Thanks again!

    Steve

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  6. Music Industry: Going to war with consumers « Technical Conclusions Says:

    […] articles on the topic: Thoughts on DRM Thoughts on DRM: Part II Have the record labels become the new […]

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