DRM / IP

Last night I chatted to a Bloke down the Pub about digital content, as you do (OK, it was a smart wine bar and the occasion was the World Forum Research bash - letting their hair down after a hard year's slaving over those most excellent mobile reports).

Anyway, what he said was very interesting.......rights is apparently not where a lot of the artists make a lot of their money anymore. T shirts, sponsorships, books and so on can make them a lot more profit, mainly because it all goes into their pockets - not the record label's. He wasn't clear on numbers, but it can be the majority of their revenues over time.

And the Internet is a great way to flog this stuff, you don't need to go on tour at all!

So by and large the whole DRM issue has been driven by the Rights Holders to hang on to their (declining) share of the total pie the Fans spend on getting into the Groove.

Only trouble is that DRM has gone down like a lead balloon with the victims - I mean customers - see John Hauxwell's very thoughtful post about iTunes and DRM.

Now it appears that the labels now want in on this loot as a condition of signing a band on too...I do in fact feel some sympathy, after all they made the stars who they were - they would have been nothing otherwise! (Tell that to the Arctic Monkeys, though)

But if the real money is not being made in actually flogging the music, w(h)ither DRM? Its expensive, instantly crackable, annoys the legal customers (and possibly drives them to piracy?).

Seems to me there is a new business model struggling to get out here, that may not actually treat the customers as criminals.

In the meantime, anyone wanna buy a T shirt down the pub - band of your choice, guv......never mind all the Chinese World of Warcraft goldminers, who is going after this gold rush

Last night at the Virtual Worlds session I was talking to two of the sponsoring consultants about DRM, when one mentioned SnoCap as the best system for music distribution today.

I said I thought it was worth waiting a few cycles to see how it pans out (knowing that Sean Fanning was already off to new fields, never a good sign). I then opined that iTunes, (a rival approach) was more than just a content delivery system and was actually a complete value chain, and that this was the real point to grasp, not the DRM free distribution solution component.

I'm no DRM fan (read this) but we need to look at things as they are, not as we would wish.

I was reminded about this little episode again after reading in the Wall Street Journal that EMI (one of the companies talking last night in fact) is trialling selling songs in unprotected MP3 format through Yahoo. Apparently online sales are stalling, so new models are being tried - about time, because the music industry (entirely via its own efforts) has allowed major competitors to disaggregate it..

With Yahoo in the frame it may just work - the thing that seems to elude everyone in this is that end to end Value Chain requirement and Yahoo gets that more than most.

I think DRM is a dead end, but there is one thing Apple taught us that seems to be missed so often; its not the point technology, its how to structure the overal value chain:

- Search for music you want via a high context database
- Get what you want - and only what you want - no bundling
- Make it easy to use and get a "free ride" on existing infrastructure
- Make the price acceptable, so the hassle factor of obtaining free music is a higher cost than buying it off iTunes
- Have a great user experience that connects into the delivery system
- Analyse the data in your end to end chain to improve the service, economics, stickiness etc etc

If these exist, then so long as the DRM is not rapacious, most people will put probably up with it - as the WSJ notes, Apple's iTunes accounts for more than 90% of the tracks sold online some weeks (according to people who work in the music industry).

And if you are going to build a zero DRM system this value chain becomes even more critical, because its only by having superior services that people will be tempted to drop free musc (aka piracy). And this is important. As the Journal notes:

Eric Garland, chief executive of BigChampagne LLC, which tracks peer-to-peer traffic, says more than one billion songs are traded over those networks every month. "It took iTunes several years to reach that particular mile marker," he notes. "The pirate market -- if we considered that a market -- would command better than 90% of the online marketplace."

To compete with all this free music will probably require a combination of better quality end to end services, and a pretty low cost of track purchase to the end user - which probably implies advertising or some other form of subsidy.

And if that occurs, you have to ask "why DRM" - DRM is necessary for a high price subscription or PAYG service, but is irrelevant for a subsidy model.

Will the DRM'ers wake up I wonder?

Postcript.....while searching for similar articles after posting, came across this one by Nick Carr (the Does IT Matter author).

An interesting report on DRM has been published by the Institute of Public Policy Research arguing essentially that the way DRM impacts citizens is not for the music industry, but for government to define.

In short, the report notes that the current DRM laws criminalise huge numbers of people in the UK for doing things they have done for years - recording music they already own onto devices they already own. Report author Kay Withers also noted that a law universally not obeyed is very hard to enforce:

"The idea of all-rights reserved doesn't make sense for the digital era and it doesn't make sense to have a law that everyone breaks. To give the IP regime legitimacy it must command public respect."

In effect the IPPR is arguing that DRM is now out of kilter with the public good:

.....the emergence of the internet means that valuable information and content can swiftly be shared with a vast audience of users. Digital Rights Management (DRM) is used by companies to micro-regulate how information and content can be used, and has received blanket legislative protection in most developed countries. The once symbiotic relationship between IPRs and public domain has become increasingly oppositional as a result of these technological changes.

The argument is not new, with organisations such as the Electronic Frontier Foundationarguing similar points. What is interesting is that an organisation such as the IPPR is making this argument now, as both the UK and EU are re-looking at the issue over the next few months. There seems to be a rising sense in the EU that the DRM content lobby got in first, and now needs to be rolled back, and the first EC hearing this month showed the consumer pushback is far stronger than a few years ago.

In fact, the lessons so far for anyone trying to enforce DRM in the medium term makes for pretty pessimistic reading, so a bit of "realekonomik" re-thinking may be advantageous - especially for an early adopter play. Simply put, the Net Present Value (and thus price) of DRM content must by definition be worth less than clear owned content, and this will eventually come out.

In fact we have argued before that in future no DRM may even be better for sales, simply because the content is out there anyway, so the issue is how to encourage more people to pay for the content.

Our company does quite a bit of DRM consulting, we've even written a few papers on the subject.

Last week I happened on this note from zdnet re the new Protect-DVD-Video DRM. To quote:

"Part of the copy-protection mechanism is a non-standard UDF (Universal Disc Format) file system which results in the IFO file on the DVD (this is the file responsible for storing information on chapters, subtitles and audio tracks) appearing to the PC as being zero bytes long.

The upshot of this is that if you have a DVD disc protected by Protect DVD-Video and you try to play the disc in a PC-based system using, say, Windows Media Player, the process will fail. Now, lets be clear here, we are taking about a genuine, legitimate DVD disc not working in a PC, not a pirated disc or a download via a torrent."

Wow! Great business model - you sell me something I can't play on 4 of the 5 PC's I have in my home, never mind take over to my friend's house.

And it set me thinking about the whole State of Video DRM today. Let me recap:

(i) DRMs by and large reduce content usage to a far more draconian world than buying the existing physical product.....
(ii) ....but there (usually) is no discount in the price asked (and it must cost more to put the DRM in)
(iii) However, it can't stop the pro crackers....usually the crack is out within weeks of the new DRM......
(iv) ......and the crack is soon on the 'net anyway so anybody can find it.......
(v) ...and if you are too lazy you can get the content off a number of Peer 2 Peer sites anyway.
(vi) So, the main impact is just to increase the hassle for the ordinary customer.....
(vii) ......who has more options for their money and time than ever before.

Have I got this right? And if so, does this make sense as a viable approach? Its not just me, here's some comments on hacking netflix

As far as I can see, the risk for anyone to build any serious library of DRM'd content is too great, unless the content player is a market leader and unlikely to go under (or change things too much as it has so many customers who will shout), or gives some form of guarantee that its DRM will remain stable (like put it in an escrow form or somesuch) - or of course I have a hack I know works so i can always get the DRM content to play.

Without that, rental is in my view the only real model that is viable.

This to me implies that DRM cannot really be viable as is, if it cannot really be used for purchases. I have often wondered if in fact zero DRM was a more beneficial approach. And in fact a Yahoo senior executive recently noted that it may be better overall to remove DRM for the good of the whole supply chain.

This leads to an interesting model - imagine a simple supply chain, and say that with DRM the rate of sell through is (say) 50% of a total potential market. Then assume having no DRM both increases sales and increases copying. Play with it a bit on excel or somesuch. As you can see by playing with this, depending on the assumptions there are a number of fairly believable scenarios where zero DRM is very good news indeed.

I will add some scenarios outcomes in a later post, it is really very interesting.

A thought on all the hoo ha regarding YouTube's content and the rights etc.

Video Webcasters are here to stay, this is just the beginning - YouTube is the video equivalent of Napster 1.0…and clearly they are aware of what happened there.

There is a raft of stuff on YouTube like for eg videos of old bands of the 70’s. Sure this stuff is copyrighted, but the holders aren’t publishing anything that you can buy - you can watch it on YouTube however.

Interesting...what is the commercial loss to the rights holder of a person watching something they could not buy anyway.

Seems to me that in a Long Tail, Web Video World a “use it or lose it” sort of approach to rights may emerge in reality.

It will be there anyway, and there is no reason to not make it commercially available if it exists as production and marketing costs are hardly an issue on the Web.

Shocking concept to the established order of things, but the reality is this sort of content will be out there anyway - what will keep it revenue enhancing will be to make it available at a reasonable price.

This could be a next evolution of the User Produced Content model - let people have access to old back catalogue material, let them do the repurposing, give them a small share of the revenue for their trouble and sell it at a fair price.

The alternative is probably that they will do it anyway, and nobody makes any money.