The Slow Death of DRM

I’ve been in a somewhat heated debate with my once CEO and now VP regarding the effectiveness (or rather, the ineffectiveness) of DRM and how the media companies are really just screwing themselves (whilst also screwing customers) by not adapting and accepting digital as this generation’s radio.

I’ve always held the stance that DRM is a useless encumbrance to legitimate users of the content while providing merely a false sense of security to the copyright holders; those who want the content bad enough will circumvent the DRM somehow.  In the end, regardless of how good the DRM is, the simple fact is that the end product must be output at some point in time.  The content can always be captured as output from some trusted system (though some quality may be sacrificed).

Time and again, we’ve seen that the application of DRM is a fruitless effort in the cat and mouse game with hackers that the hackers have won every time.  Witness:

In his open letter, Steve Jobs comments on DRM and states:

Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. 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 would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.

Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.

I tend to think that a technology visionary like Jobs “gets it”.  He understands that it is quite likely that no perfect DRM system can ever be created but in an effort to use these imperfect DRM systems, the only people that are being punished are legitimate consumers of the media by being locked into proprietary stacks of players, online stores, and digital media.

He also touches upon an oft ignored point: the CD, a digital source, itself does not contain any form of DRM.  It’s true that the designers of the format perhaps did not foresee a world digitally connected and able to distribute 650MB worth of data in mere seconds (BitTorrent),  but that does not absolve the fact that they’re plugging the crack in the dam while ignoring the gaping hole.

It is my view that the actual number of people who actually rip and distribute music from CDs and DVDs are a very small percentage of all consumers.  Meanwhile, there is a much larger percentage of consumers who get their copies illegally from these sources via peer to peer and file sharing networks.  And yet a larger percentage of people are actual legitimate consumers who plunk down the full price of the CD or DVD in stores and take it home with them.

What the music industry should be concerned about is not that marginal percentage of sources (those who hack the DRM systems or use the resultant software to rip and distribute the content – this group will continue to do so, indefinitely), but the much larger portion of the consumer population that illegally downloads the output of these providers even in the face of the minor threat of legal action.  The question of course is how they can reach this consumer (or at least a large proportion of this consumer).

The secret seems to be offering a “fair deal” to the consumers.  I can still remember the days when CD singles cost $5, 6, 7, even 8 dollars!  Of course, what is “fair” is arbitrary and, as my VP would say, “determined by the market” (what he seems to disregard is that the music industry was guilty of price fixing to artificially inflate the cost of CDs instead of allowing for the market to decide the fair price), but clearly, this price seems absurd!  Of course, then the question is, what is fair?  Is iTunes’ $0.99 model, “fair”?  It’s difficult to say since “fair” is relative to the consumer.  To some, $25,000 is “fair” for a cell phone while to others, $250 seems absurd for a cell phone (obviously different products, paying for brand, etc.; but the essence is that they are functionally equivalent in damn near every way).  Price is not the only factor: consumers, as Jobs noted, expect that once they’ve paid for the content, they can reuse it (not redistribute it) in their cars, on their cell phones, on their portable music players, and so on.  In the consumer’s eyes, DRM is but a nuissance driving them to find DRM free, illegally distributed versions of the content.

Today’s news that’s buzzing around the Internet community is the upcoming release of Radiohead’s next album.  Most of the buzz centers around the fact that this is the first major artist/group to release their music completely independently…no music labels involved.  Not only that, this is the first mass live experiment in determining “fair” pricing in terms of music and media:

From Time:

There’s no label or distribution partner to cut into the band’s profits — but then there may not be any profits. Drop In Rainbows’ 15 songs into the on-line checkout basket and a question mark pops up where the price would normally be. Click it, and the prompt “It’s Up To You” appears. Click again and it refreshes with the words “It’s Really Up To You” — and really, it is. It’s the first major album whose price is determined by what individual consumers want to pay for it. And it’s perfectly acceptable to pay nothing at all.

It will be an interesting experiment indeed; the results of which, if shown to be successful, will shake the music industry to the core as other artists start to adopt the model.  The music industry has been put on notice: adapt or die.

Will Radiohead be successful?  Will they earn a dime?  One thing is for sure, they will gain a new audience of listeners who would otherwise not have been willing to purchase a CD for $16.00, but will surely download and sample the new tracks for free or for a nominal price.  But from this, it’s easy to predict that Radiohead will surely increase sales of their previous albums as a new set of listeners discover the group because they’ve opened their content to the consumer.

It is the same with Internet radio stations, where the absurdity over the proposed rates to be paid by Internet radio stations was just recently put on hold.  In the age of HD radio broadcasts and radio-to-computer devices, what sense did it make to treat Internet radio any differently from traditional FM radio and even satellite radio?  Like traditional broadcast radio, Internet radio serves the same purpose in that it allows consumers to discover artists that would otherwise not have been given a glance (every CD I’ve purchased in the last 5 years has been a result of hearing the artist or group on an Internet radio station first).  It’s simply that I’d rather listen to music from my computer than from my stereo.  To the consumer, the nuances of distribution and control of the media are irrelevant: the consumer just wants to listen to the music and it’s really no different than an HD radio broadcast.

The media companies need to adapt and embrace technology.  They need to study how consumers want to use the content.  They need to understand that the old models won’t work anymore in a connected world where content is expected to be transferrable with little hassle and reusable by the consumer (just as a CD should play in your car, in your desktop stereo, on your computer, or from a portable CD player (do people still use those?)).

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