Talking DRM Blues

Talking DRM Blues

Everybody is talking about digital rights management.

DRM, which protects online music purchases from unauthorized copying, is rapidly becoming one of the most controversial issues facing the music industry since Napster turned the Internet community on to peer-to-peer file sharing in 1999.

Steve Jobs fired a major salvo February 6th when the head Apple man posted a commentary on his company’s Web site detailing his opinion on DRM.

Titled "Thoughts On Music," Jobs decried the monster that his iTunes helped birth – that songs purchased online will not play on all music players, due to incompatible DRM technology.

In his essay, Jobs summarized how Apple approached the major labels to license their music for online sales, and told how the recording industry wouldn’t go along with his iTunes concept unless he provided copy protection for the music downloads. He described how Apple negotiated "landmark" usage rights allowing users to play DRM-protected music on up to five computers and on an unlimited number of iPods

And then he trashed the current state of DRM and covered the major talking points that have been raised over the last couple of years.

Regarding the current situation, he took issue with complaints that once consumers buy a music player, their online music purchases are limited to stores selling DRM-protected songs that are compatible with the player.

Quoting stats from his own company’s research, Jobs claimed that most of the songs found on iPods are from users’ CD collections and only a small number of songs were purchased from iTunes.

"Today’s most popular iPod holds 1,000 songs, and research tells us that the average iPod is nearly full," wrote Jobs. "This means that only 22 out of 1,000 songs, or under 3 percent of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97 percent of the music is unprotected and playable on any player that can play the open formats. It’s hard to believe that just 3 percent of the music on the average iPod is enough to lock users into buying only iPods in the future."

Jobs also presented his reason for not licensing Apple’s FairPlay DRM technology to other manufacturers and online music vendors, claiming it would only make FairPlay more hacker-friendly.

"The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak," Jobs wrote. "Such leaks can rapidly result in software programs available as free downloads on the Internet which will disable the DRM protection so that formerly protected songs can be played on unauthorized players."

Then Jobs gets to his third point – the one the media zeroed in on.

"The third alternative is to abolish DRMs entirely," Jobs said. "Imagine a world where every online store sells DRM-free music encoded in open licensable formats. 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 could switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music."

You can bet that caught people’s attention.

"Apple Chief Urges Shift On Piracy" was the headline on the New York Times Web site the next day. "Apple Seeks To Unchain Melodies" is how the Los Angeles Times put it. In fact, Jobs’ "thoughts on music" was one of the most-covered news items during the middle of the first full week of February, sharing headline space with the war in Iraq and the crazy astronaut with a thing for diapers.

But while Jobs talks a good fight, was his DRM thesis all that consumer-friendly?

Or is he just trying to land the first punch in a bigger fight yet to come? A battle that is currently brewing between Apple and several European countries that just might find its way to the States before year’s end.

It started last year when consumer groups in Norway, Denmark and Sweden charged that Apple’s proprietary DRM was violating copyright laws in their countries. The consumer groups’ campaign to force Apple to make iTunes compatible with non-iPod players was recently joined by Germany and France. What’s more, both France and Norway recently enacted legislation to force Apple to provide cross-compatibility, with Norway giving the company until March to comply.

But it’s hard to imagine Apple opening up its European iTunes stores to other DRMs while keeping its U.S. store safely within the bounds of its own FairPlay system. Jobs’ recent essay about chucking DRM may be an attempt by Apple’s CEO to launch a DRM discussion on his terms, before the courts do it for him.

But while public opinion seemed to side with Jobs (after all, do consumers ever ask for more restrictions?), the trade group representing the major labels wasn’t nearly as pleased.

Less than 24 hours after Jobs’ essay appeared on Apple.com, the Recording Industry Association of America launched its rebuttal, saying that instead of urging the recording industry to drop DRM protection, Apple should license its technology to its rivals.

"We have no doubt that a technology company as sophisticated and smart as Apple could work with the music community to make that happen," said RIAA chairman and chief executive Mitch Bainwol.

Bainwol wasn’t the only person voicing opposition to Jobs’ proposal.

"Eliminating online DRM appears to us to be an overly risky move that eliminates the potential for a future digital-only distribution model free of piracy," wrote Deutsche Bank analyst Doug Mitchelson.

"All these music services wouldn’t work without DRM," said Jupiter Research analyst David Card. "[Music labels] are very nervous about distributing content that is unprotected. They think that everybody will share music, and there’s evidence that a lot of people will."

On the other hand, there were plenty of people agreeing with Jobs.

"Locks on 99-cent downloads are not the way to deter piracy, given that the vast majority of music is still sold on unlocked CDs," stated a Los Angeles Times editorial. "Bootlegged copies of recorded music show up online as soon as they come out on CD, if not before; locking up the downloadable version is akin to padlocking the barn after the cows have run for the hills.

"Clearly DRM is not working," said Ted Schadler, an analyst at Forrester Research. "It sends a message to the customer that ‘we don’t trust you.’"

Au Revoir Yahoo

Two key players at Yahoo Music have announced their resignations.

Yahoo Music head David Goldberg and GM Robert Roback announced they were leaving the Web portal’s music service to return to their "entrepreneurial roots," according to InformationWeek.

The announcement came shortly after Goldberg made a few headlines of his own by speaking out against digital rights management technology.

Goldberg told SiliconValleyWatcher that Yahoo Music’s experiments selling unprotected MP3s had increased sales, and that he had long favored eliminating DRM from online sales.

"I’ve long advocated removing DRM on music because there is already a lot of music available without DRM, and it just makes things more complicated for the user," said Goldberg, who also complained that the Microsoft DRM used on Yahoo Music "doesn’t work half the time."

Yahoo has not commented on Goldberg’s remarks. Both Goldberg and Roback joined Yahoo when it acquired Launch Media in 2001.

Et Tu EMI?

Steve Jobs’ "Thoughts On Music" wasn’t the only news item of the week working overtime to make DRM a household acronym. Now it appears that at least one major label is thinking along the same lines as the Apple leader.

Only three days after Jobs told the world what he thought about copy protection, The Wall Street Journal reported that EMI might lift online music restrictions and sell its entire music catalog as unprotected MP3s.

The Journal, citing "people familiar with the matter," claimed the label had already talked with several online retailers about selling MP3s.

Of course, EMI has already gotten its MP3 feet wet. Late last year the label made news when it offered tracks by Norah Jones and Relient K on Yahoo Music in MP3 format. So the label already has experience in selling music in an unprotected format. And, apparently, it’s willing to take the next step.

Along with talking with Apple’s iTunes, the Journal reported that EMI had spoken with RealNetworks, MusicNet, MTV Networks and eMusic. If the label did indeed talk with eMusic, that would definitely represent a DRM attitude adjustment.

eMusic, which sells only indie releases, is known for its subscription rates and no-strings-attached MP3 policy. That a major label might consider licensing its catalog to an online store that sells 30 downloads per month for $9.99 shows you just how far out of the box EMI execs might be willing to go.

But apparently EMI isn’t willing to just post MP3s and collect 99 cents per sale, either. According to the Journal, EMI is proposing that online music stores make a one-time, multimillion-dollar "risk-insurance" payment before they start selling the label’s wares in MP3 format. So far, none of the online stores have accepted EMI’s proposal.

Then EMI floated another proposal by asking online stores how much they would be willing to pay to sell unprotected MP3s. Apparently, the label is still waiting for an answer.

But the fact that a major label is willing to discuss selling unprotected MP3s indicates a possible change might be on the horizon. The current DRM controversy is rapidly developing, and may well shape up to be the biggest story in digital music since, well, since DRM technology made it possible for online stores like iTunes to exist.

In other words, what goes around…