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DRM Keeping the Treasure Hidden or Opening the Mountain

Written by: Andy Marken

Article Overview: DRM -- digital rights management -- is an important concern to everyone in the content industry, whether you develop it, distribute it or simply use it. Good DRM properly developed and executed can enhance the value of your content. Done poorly it can diminish the value.

DRM Keeping the Treasure Hidden or Opening the Mountain

“Conscience. What a thing. If you believe you got a conscience it’ll pester you to death. But if you don’t believe you got one, what could it do t’ya? Makes me sick, all this talking and fussing about nonsense.” -- Dobbs (Humphrey Bogart) – The Treasure of the Sierra Madre (1948)


Sometimes when folks are trying to run you out of town on a rail the best thing you can do is start leading the parade.

The guy from Cupertino (hint that’s Steve) made a bold move in that direction with his Manifesto posted on the Apple web site.

He turned to the crowd and said…”Wait a minute folks my lowly little anywhere music player/music site isn’t the problem. The devils in your own back yard made me do it.”

He’s right…and he’s wrong.

The entertainment industry is right…and they’re wrong.

The entertainment consumer is right…and he/she is wrong.

It all boils down to DRM (digital rights management) and CA (conditional access) of content. By deftly deflecting the issue from Apple’s phenomenal iPod/iTunes success to the requirements the music industry laid down that enabled the company to garner more than 60% of the mobile music player market his posting may force the industry to finally work together for the…consumer.

Once content became digital it became tradable – easily swappable across the internet.

People have learned to suppress their conscience regarding the content they grab, enjoy, pass around willingly (Figure 1).

Jobs notes that his DRM only protects the content on iPods that are legally purchased from iTunes. According to his figures that’s less than 3% and the rest comes from…anywhere/everywhere, legal/illegal.

Truth is online music purchasing has increased. According to the Online Publishes Association (OPA) online paid sales were $1.3 billion in ’02 and $2 billion in ’05. While these sales were generated by RealNetworks, AOL, YouTube, LimeWire, Yahoo and others; iTunes was the runaway leader in download music sales.

According to the International Federation of the Phonographic Industry (IFPI) download sales are still only a fraction of physical content sales (Figure 2). That would be okay but those sales are falling.

Since it was introduced, iTunes has enjoyed 1 billion song sales. That’s only logical.

You bought into Steve’s vision of the super cool, super hip white earbuds/cords. Of course you’re going to buy into his super smooth way of getting the music !

Who knew there were strings attached? Oh yeah a few disgruntled folks in Europe and those pesky folks who file class action suits.

Wanna use someone else’s player? Go somewhere else to buy your music.

Wanna throw someone else’s music on your iPod? Have at it.

Folks are…

According to BigChampagne (an Internet measurement firm) more than 15 billion songs were “illegally” downloaded last year. Maybe that’s why the music industry’s physical (unprotected) content sales are in…the toilet (Figure 3).

Disc sales declined another 4.9% according to Neilsen SoundScan. But online song swapping was up. This is probably the only time you can’t blame the kids for the sales decline (Figure 4). Sales were actually up for the teens and tweens. More than we can say for the other entertainment enjoyment age categories.

So obviously we all know the problem. Its Steve’s closed environment !

The music industry wasn’t real happy when Steve hammered out his deal with the music industry but they went along figuring it would be a good test and they had control. The rest of the computer industry figured this was another one of his dumb ideas that would fall on its ***.

It wasn’t revolutionary…just elegant. And it was obviously wildly successful. So what the hell ? The rest of the industry obviously wanted their piece of the action.

Or as Walter Huston (Howard) said…“Ah, as long as there’s no find, the noble brotherhood will last but when the piles of gold begin to grow…that’s when the trouble starts.”

Steve’s recommendations? Choose from column A, column B or column C:
- Column A – Get outta my face
- Column B – We’ll license FairPlay to folks, charging a hefty fee and raise the cost of iTunes songs. Oh yeah in no time at all your kids will have cracked the code and my 2 billion sales will dwindle because one will buy the song, post it on one of the hundreds of free-for-all sites and you’ll have to increase the number of lawsuits (again)
- Column C – Your anemic music DRM is a dumb idea anyway so let’s just trash it and everyone will happily sell music DRM free and your sales will increase as more players share more music they all … buy

Thank gawd the “he doesn’t play nicely with other people” complainers didn’t lump video into the mix. Oh that’s right. Steve doesn’t own music content does he?

But video? Disney and Pixar (which he sold to Disney) are movie companies and he is Disney’s largest shareholder. Making that DRM free sounds like a really dumb idea !

Online video downloads and sales are just taking off (Figure 5).

People are increasingly taking advantage of YouTube, TV network and Hollywood/indie download sites for their video on the go (Figure 6).

When it comes to paid video downloads, iTunes again leads the pack. NPD estimated last year that Steve’s site accounted for 67% of the downloads. Way back in the field were MovieFlix and CinemaNow.

The industry is still struggling to figure out how to do with folks like Slingbox that let you shift the time and location of your home cable content to your smartphone, laptop or other device.

Slingbox says you’ve paid for the content so you enjoy it anywhere, anytime, on anything you want. Problem is the artists and providers get paid based on play…every play. As Slingbox and go-for-it video download gain momentum they could see the same proportion of illegal vs. paid downloads the music industry is now experiencing.

While folks claim download movie sales are going to go thru the roof just as music has done someone forgot to look at the pipe to your home.

The world does not have WiMax everywhere…nor cable…nor satellite…nor even DSL. And downloading standard def takes…TIME! Downloading hidef on a regular basis takes…FOREVER (Figure 7)!

While a number of analysts have said under their breaths that the best DRM is no DRM, that isn’t going to happen.

DRM is big business (Figure 8) and it is going to get even bigger.

Problem is…it’s splintered.

Everyone has a solution. Each is built on their platform…with their technology.

Every time a DRM/CA solution is introduced it is cracked. The content is shared. Content owners, artists and all the “little people” are screwed !

Contrary to what Walter Huston said in The Treasure of the Sierra Madre --“You know the worst ain’t so bad when it finally happens. Not half as bad as you figure it’ll be before it’s happened.” -- it is bad because folks are deprived of legitimate income.

We all understand that and agree with it. But free is a powerful inducement in grabbing and enjoying your entertainment content – music and video.

So if DRM free content isn’t going to fly and the courts aren’t going to let Steve go along fat, dumb and happy selling in his own closed environment; he could still end up being the big winner.

The marketplace could shift from music sales']);"> digital music sales to rental and the DRM could be built on Apple’s approach.

He has met the demands of folks in Europe. He has done his “level best” to protect the consumer. He’s now selling technology to everyone in the industry – the big four music companies, Microsoft, HP, Panasonic, Dolby, Clear Channel, you name it.

He ends up with whip cream on his face and smelling like a rose.

And … he’s already to move swiftly into the digital home space that analysts expect to top 50 million homes in the U.S. households and four times that figure worldwide by 2011.

Think about it Steve.

The world of entertainment suddenly revolving around DRM that relies on some portions of Apple’s technology. That’s gonna make a lot of miners jealous !!

As Bogie said in the movie…“Do you believe that stuff the old man was saying the other night at the Oso Negro about gold changin’ a man’s soul so’s he ain’t the same sort of man as he was before findin’ it?”


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Charts and illustrations available by contacting andy@markencom.com

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