Opinion: Who needs DRM?

Posted by Wolfgang Gruener

I am not a big fan of Apple and not of Steve Jobs in particular. Yes, Apple products look nice, but they are for people who drive to the grocery store in a Lexus rather than a Toyota. And Steve Jobs still doesn't blush when pocketing all those standing ovations for a new product, although there may be hundreds of other Apple employees who would deserve that recognition much more.

But then, I really can't deny Jobs' brave and - in the IT industry - stunning move to question the value of copy protection technologies for digital music, commonly referred to as digital rights management (DRM). In fact, his "Thoughts on Music" may bring common sense to an industry that suffers from piracy paranoia. Jobs' conclusion that DRM-free music would create "a truly interoperable music marketplace" and an environment that "Apple [would] embrace wholeheartedly" could inject a sense of reality into board rooms that have been haunted by the Napster ghost for almost a decade.

 

Lessons learned from Napster

Oh yes, Napster. Remember the Napster that became the first successful P2P service in terms of market reach, that attracted millions of music downloaders in the late 1990s and early 2000s, but was sued into meaninglessness by the Recording Industry Association of America (RIAA)? Wikipedia does a great job of refreshing our memory about the events surrounding Napster, which was shut down in late 2002.

Once the RIAA had caught up with the trend and realized Napster's impact sometime in 2000, Napster's fate was sealed. Of course, everyone was aware of the fact that there was a serious problem with facilitating mass-piracy, which Napster essentially did. But I have my doubts that the RIAA was so honest in its motive to close down Napster: Foremost, the organization claimed that musicians suffered from those illegal downloads. Artists would need a model that would allow artists need to be compensated, we were told.

But the RIAA campaign was not about artists. It was about infrastructure. Napster provided evidence that people would embrace music downloads and listen to music on their PCs, if content was made accessible in a convenient and simple way. The problem, however, was that Napster became a threat for the RIAA, as it cut out the middleman from music distribution and was in a position to render music publishers - the main financiers of the RIAA - irrelevant.

It was bad luck for Napster that it grew too big too fast, leaving the RIAA seemingly no other choice than to swing the axe and get rid of what really was an ingenious idea that revolutionized the way music was distributed. Today we know that the legal proceedings against Napster were foolish, as the existing user base was abandoned, while many of them surely would have signed on to a reasonable commercial Napster. It could have developed into what iTunes is today or, in a worst case, could have provided a balance in the digital music distribution market - a balance the music industry so badly would need today.

Unfortunately, we don't live in a world of could's and would's and music executives have to deal with an iTunes that controls 70% of the digital music download market. Apple filled the gap that was left by Napster and built a goldmine from the Napster experience: Apple knew that users were ready for multimedia on their PC and MP3 players, if there was a comprehensive library of music and easy access to that content.

A quick thought on the claim that people were using Napster just because it was free, all-you-can-eat service: Yes, there are always users that pirate content for the simple purpose of pirating. But anyone who used Napster knew that finding complete songs in an acceptable quality for PC listening (and I am not even talking CD burning here) often was a very time-consuming task. And I'd claim that the vast majority of those Napster users would have switched to a commercial service with reasonable prices in a heartbeat - in exchange for higher quality music and the guarantee of complete, virus free tracks.

Let me also take a quick swing at commercial download services such as iTunes enable a fair compensation of musicians. There aren't official numbers out there, but credible sources told me that out of those 99 cents you pay for a song, only five cents go to the artist. Apple takes a bigger share in order to be able to pay for the service, the development and the infrastructure to provide those downloads, but the lion's share, an estimated 60-70%, disappears in the pockets of music publishers. I leave it up to you to decide whether that is fair or not.

Read on the next page: DRM going overboard and the first signs of DRM going away

 


 

DRM going overboard

When Napster was gone, other (illegal) file-sharing networks surfaced, and the music industry, with the help of technology companies, made first baby steps into the digital music age. But they certainly weren't serious. We saw download services, for example, which charged a monthly fee, charged extra for every download and allowed a limited number of tracks - often less than ten - to be burned on a CD every month. In most cases, downloaded music was only functional as long as a subscription to such a service was active.

From a consumer's perspective, these first-generation music services made pretty much every mistake that could have been made. Digital downloads were more expensive than the actual CD in the store and despite the fact that users had legally purchased songs, DRM kept them hostage. And you have to remember, we are talking here about music that had a lower quality than the (unprotected) music you got through a regular CD.

DRM evolved into a tool that automatically assumed that every music download would fall into the hands of a criminal who has nothing else to do than to mass-distribute purchased songs. What we know as DRM today lacks common sense and has become quite the opposite of what was Napster's secret sauce: Once easy to acquire and to use, music downloads have become a pain to deal with.

iTunes was really the first music download service that embraced what Napster should have taught the music industry. There was an easy to use interface, a somewhat reasonable price for music, combined with a large selection of music in one place. And even despite its restrictive DRM, which limits the use of downloaded to five computers and as many music players as you want (as long as they are iPods), more than 2.2 billion songs have been purchased from iTunes so far. That may sound much, but in fact that is only 22 songs per iPod, according to Jobs, and a sign that people still get the majority of their music from somewhere else - such as regular CDs.

Yes, there is also the opportunity, if you are patient and brave enough, to get pirated music for free. But realistically, piracy will always be there in one form or another. There will always be someone who considers it a challenge to be first to break new copy protection technologies and there will always be someone with the necessary resources to break any DRM technology. But instead of making legal digital content as inconvenient as possible for all of us, what about making it as convenient and safe as possible? Could that approach create enough value to devalue pirated music? Would ease-of-use convince more people to purchase more digital music legally?

The content-technology-consumer dilemma

What is standing in the way of a potentially more convenient way to purchase and consume digital music (and video) is a love-and-hate triangle between content owners, technology companies and consumers.

Consumers have shown that they are willing to pay for digital content on their PC and portable music players. Technology companies consider this trend as one of the key reasons for users to buy new computer products; as a result, the Intel's and Microsoft's of this world, are increasingly dependent on a growing online availability of music and videos.

In some way, technology companies act as a mediator between the consumer and the content industry: On the one side, tech firms would need to advertise lots of content with as little DRM as possible in order to attract new customers; on the other side, without strong content protection technology, they can't convince content owners to make their content available to consumers.

However, what would appear to be a powerful position for technology companies, turns out to be a one-sided game: Content is king. Content owners have the upper hand at this time and pretty much dictate what is enough DRM and what is not. The tech industry is just learning to understand the way Hollywood ticks and individual tech companies are unlikely to risk their young and fragile relationships with content owners.

 

A changing environment

Interestingly, there is an IT company that has made its way deep into consumer electronics and has grown into a powerhouse that is connecting traditional computing technology with technology that enables everyone to enjoy audio and video on easy-to-use devices - Apple. Other than what I have described above, Apple is beginning to depend less on the music industry than the music industry depends on Apple. iTunes may account for just 10% of all sold music tracks, but the service represents the dominant digital music distribution platform and has the influence to shape future trends - more than any other product in this segment.

But Apple knows that there are growth barriers - growth barriers that are responsible for the fact that the average iPod owner has purchased only 22 songs from iTunes. In his open letter, Steve Jobs indicates that copy protection is that growth barrier and what is remarkable, is the fact that he breaks apart from what appears to have been generally accepted scenario and openly questions the value of DRM. Suddenly, it becomes clear that Jobs and Apple may be powerful enough to follow through with an initiative that could end up in the demise of DRM or, at least, in a much more reasonable DRM than what we have today.

Jobs' "Thoughts on Music" appear to be more than just a collection of some random ideas that have been posted on the company website. They are a reality check and a wake-up call for the music and IT industry. Time will tell, if Apple will make another move in a game that finally could balance the triangle between content owners, technology providers and consumers.

Keep your eyes on this topic. From the consumer's view, Jobs' posting is one of the most significant moves we have seen in digital music in several years. And maybe, just maybe you could see other technology companies joining Apple in this unprecedented effort. Everyone can live without DRM. Even the music industry.