Monday, January 22, 2007

DRM 2.0

Digital Rights Management (DRM) gets a lot of press these days. DRM is what prevents you from being able to make copies of songs you buy from iTunes. I won't go into the whole history and complexity, since it's easy enough to find plenty to read. But the short version is, DRM is designed to prevent you from copying media. This could be physical media such as a DVD, or something you downloaded, like from Apple iTunes store.

The practical implication of this for most people is it's a pain in the neck to use music or video, for which you paid, in flexible ways. For example, you can't use something from iTunes on a zune (or any non-iPod device, for that matter). You can't "loan" a downloaded song to your friend. If there were a single DRM scheme that was standardized, it would still be inconvenient, but at least then you'd be able to use your music on different machines. However, there exist many, non-interoperable schemes.

The music industry has always defended these schemes as necessary to protect themselves against rampant piracy. Yet, rampant piracy exists, and continues unfettered. Movies show up on the internet sometimes even before they've been released in the movie theater, not to mention before any official DVD release! CDs have no inherent copy protection, and anyone can easily make freely distributable MP3 files from a CD. These facts don't sit very well with the music industry's rationale for DRM, which effectively encumbers the end-users ability to use music and video which they paid for, in a legal manner.

The truth is far more sinister. At last the music industry has admitted that DRM isn't really about piracy, it's about making money. They want to make people pay for the same thing many times over. What used to be considered fair use, the music industry aims to make technologically impossible, essentially making you pay for the same thing more than once.

The irony, of course, is that the pirates continue on their merry way, as they always have, whereas the actual paying customers get less and less value -- and logically, as one gets less value, one probably tends to buy such a product less. And as the DRM schemes become more complicated, very real problems are starting to crop up for people who are simply trying to use hardware and media they legally own in normal ways, as PlayStation3 owners are discovering.

Personally, I'm a music lover. I buy a lot of music, I see a lot of live music. I'm also a technology freak. I just bought my first iPod against my better judgment - an 8 gig nano - because it's such a cool little whisker. But I also own a 4-year old 60 gig Creative Zen xTra, which while not nearly as slick, is perfectly functional and is my car jukebox. I have no intention of getting rid of it until it dies. And finally I have a Slim Devices Squeezebox, which is by far greatest piece of music technology invented since the LP and anyone who loves music owes it to themselves to get one. So, you'll never see me shopping at iTunes for my music, since I won't be able to use it on any of those devices except the iPod.

Think about this. The way iTunes works is the equivalent of Sony trying to sell you CDs that would only work in a Sony CD player. Remember the Betamax? And iTunes goes one step further - it only works on your "CD player", not your friend's. Most people would laugh out loud at this idea as it applies to physical media. Yet Apple has only managed to get away with it so far because for a lot of people, the iPod is the "industry standard" MP3 player and they don't realize or care about this fact. And this has a wonderfully insidious marketing strategy for Apple, since they have made it very difficult for people to buy anything other than an iPod.

Well, there's evidence that this philosophy may change in the near future. Many independent record companies already sell their music DRM-free. (Ironically, if you buy the same music from iTunes, it comes with DRM anyway). But there are whispers of majors beginning to expirement with this idea. And despite the claims that piracy is the whole point of DRM, the impetus for this change is, yet again, money. Finally, a beleaguered industry is thinking about doing what any good business person knows without having to wage a multi-year, billion-dollar battle: provide you customers a good product at a reasonable price, and they'll keep coming back.

I suspect that Apple is starting to, well, crap in their pants at this idea, since the end of DRM for music means the end of the iTunes/iPod stranglehold on the digital music market. But this is nothing but good for us, the consumers.


Schumpeter said...

The success or failure of DRM is also likely to depend on the entertainment industry's ability to sustain good public relations with end users. Ultimately, I think, the vast majority of Americans (and others) understand the idea of intellectual property rights (IPR), and the rationale for protecting them. Granted, the idea of "stealing" a song that has zero social marginal cost to produce probably doesn't bother most people as much as shoplifting something from a store (which did have a marginal cost to that store money to produce or obtain), but the success of Apple to develop a successful business model with iTunes where other people failed is a testament to Steve Jobs' ability to "get it" when the rest of the record industry was saying nobody would pay to download music. (Those others, of course, were demanding ridiculous amounts of money!) Similarly, I think many consumers might accept some basic, innocuous forms of copy protection. Sony really screwed the pooch though, when it thought up the brilliant idea of putting a computer worm on their CDs that would infect the users' computer when it was put in the CD drive... Their rationale was that they could monitor the users' computers to ensure that no illegal copying was going on. But the vast majority of the people in the U.S. are not tech savvy enough to understand the subtlety of the argument (me included). When our anti-virus computer tells me that my new Sony CD is trying to hack into my computer and send out information about me.... well, we say, HELL NO! I think that set the industry's ability to win the DRM PR-war back quite a ways...

Jamie said...

I agree that people would accept some form of DRM, but at this point it's far too invasive and limiting.

Apple fights for DRM for their own reasons (not RIAA) - they want their sizeable base of iPod users people shopping only at iTunes. If the major labels sold MP3s without protection, iTunes would instantly become less valuable, since you could get a better product for the same price. As it is now, though, iTunes remains the only place to buy the majority of popular music online to play on your iPod.

I credit Apple for making lots of money on the iPod, but in the end it's a success based purely on a monopoly. People will accept proprietary standards for a while if they are the only game in town, but there's no precedent for this kind of model being sustainable.

I don't think SJ "got it" so much as the rest of the music industry feared the (predictable) result: huge increase in online music sales, huge decline in CD sales -- and overall decline in music sales. Since you can buy a song for a buck, instead of an album for 15 bucks, people are buying a song here, a song there and foregoing the full-CD purchase.

Now this is largely a result of the music industry producing huge volumes of garbage -- a whole album of throwaway stuff to back up one or two hit songs -- and they deserve to suffer for this. If it was worth buying the whole album people would.

Mark said...

Here's the thing about Apple DRM: it's the easiest thing in the world to circumvent, and everyone knows it. Additionally, you don't have to buy from iTMS to use an iPod. Everyone in Brazil who has an iPod, for example, has to find other ways to put music on their iPods, because we're not allowed to buy stuff from iTMS in other countries (restriction on the site, probably because of the RIAA and its equivalents in other countries) and there is no iTMS in Brazil.
I have nothing but MP3s on my iPod. I've got something in the neighborhood of 15-20 gigs of music on my iPod, and not a single song came from the iTMS.

Jamie said...

I agree with that, and I have no intentions of buying any DRM'd content myself, but I'm speaking from a big-picture position. The four major record labels do not sell online anywhere else. So you can get indie stuff in MP3 format legally, but Apple retains the lion's share of online music sales, since there is no (legal) alternative for most popular music (other than buying CDs, of course). YET.

My point is that this isn't a viable business model long-term, and in fact it actually may cost sales because people who might be happy to buy a non-DRM'd song for $1.50 will instead find it on bittorrent or whatever. At this point, I think RIAA is wising up to this fact, while Apple probably lives in great fear of the day when iTunes has real competition. RIAA may have something to gain by losing DRM but Apple certainly does NOT...

Mark said...

I think we have very different views of Apple's iPod business model. I think they're making a lot more on iPods than they are on iTMS. iTMS is important, because gives Apple part of the huge advantage that helped it win by far the largest share (a sizeable majority!) of the digital music player market, but I don't think Apple is counting on iTMS revenues to make the whole thing viable. It's not like Apple is Sony or Microsoft selling video game systems at a loss in hopes of making more on game sales.
Apple was not the first into the digital music player market, nor does it make the cheapest product, nor the one with the most bells and whistles.
However, among all the players I've seen, the iPod has the simplest user interface. For example, I think I could teach my 93 year old grandmother to use an iPod. With iTunes, the iPod offers the best overall user experience even in a country with no Apple presence and no iTMS. I don't think I could teach Grandma to use iTunes, but for people who are used to doing basic things with computers, the iPod/iTunes experience is really easy.
Add in iTMS, as Apple has in some of the most important national markets (USA, Europe, Japan, etc.), and you give users a very simple overall experience that "just works" and gives very few headaches. I don't think iTMS is important to Apple because of its revenue; I think it's important only in giving people an easy way to do what they want without having to fsck around with complicated stuff.
Sure, you or I or any other technically inclined person could find alternate sources of music, copyright infringing or not, and any of the other jillions of people with iPods could find a way too if they wanted to do so, but Apple has given them an easier way, and from what I've seen, the public has absolutely eaten it up.
Is there any other explanation for total domination of a market by a product (line) that is not the cheapest, nor the most technically advanced, nor the one with the most features?

Jamie said...

I do not deny that the iPod is a very well designed product, as I mentioned in the post, I actually just bought my first one despite my problems with the business model.

But the DRM issue isn't just about selling music, in fact, that's peripheral. It's about locking you into using Apple's hardware. Once you have an investment in iTunes encrypted music, it is very difficult or expensive to move your music to another platform (for typical users). Given that the market life of one of these gadgets is probably only a couple years, that's a lot of repeat business.

Even the mighty will eventually fall in a competitive market, but Apple has created a monopoly situation at this point where most users (who have purchased any quantity of music from iTunes) are locked into their platform.

This is basically proven by the fact that Apple will not license their DRM scheme to anyone else. There is no non-Apple hardware that can play iTunes music. The only possible rationale for this is to ensure their hardware monopoly. This is also proven by the fact that iTunes sells NO un-encrypted music - even songs which the copyright holder sells their own work as unencrypted MP3s elsewhere (They Might Be Giants).

I agree that apple made a great product, and the public ate it up. But this does not alter the fact that their business model for ensuring continued market domination is very anti-consumer and anti-competitive.