EMI led the charge on removing DRM from paid permanent music downloads over the Internet.  The music industry finally got some factual evidence that removing DRM on paid downloads has no discernable effect on piracy. 

This led to several philosophical debates about the future of DRM, beyond the usual arguments about anti-piracy (the media industry) and restrictions of consumers' rights (consumer advocates and techno-libertarians).  Two public remarks made during the past year in particular were influential enough to alter the tone of debate. 

One was in September, at the Digital Rights Strategies conference in New York, in Intertrust CEO Talal Shamoon's keynote speech.  He said out loud what many people in the industry have been saying in private for some time now: the problem with DRM being implemented now is that it's bad DRM.   Many heads in the audience nodded.

The other tone-changing statement came in the New York Times in November, from Jaron Lanier, the noted tech visionary and sometime musician.  His Op-Ed piece, called "Pay Me for My Content," was a follow-up to another Times Op-Ed piece he wrote in 1999, "Piracy is Your Friend," one of the early jeremiads against the recording industry and its insistence on antipiracy laws and DRM.  In "Pay Me for My Content," Lanier admitted that he was wrong, that a decade of Internet innovation has not delivered a way for content creators to get paid. He said that all it has delivered is ways to exploit content creators to sell advertising.  He called for creative technology designers to build systems that get people to pay for content.

It seems that Lanier has finally figured out something that many others haven't yet: major media companies' business practices and content creators getting paid are really two separate issues.  A few visionaries did figure this out a while ago.  For example, in the late 1990s, Larry Miller and Howie Singer at AT&T called their early experiment in digital music distribution a2b for "Artist to Buyer."  Former Future of Music Coalition Executive Director Jenny Toomey used to tout the power of the Internet to connect musicians directly to fans, without big record labels, distributors, retailers, or radio. 

Unfortunately, it's hard to imagine a way of ensuring that people pay for content without some way of propping up its value; otherwise, the price of digital goods inevitably floats to their cost of distribution -- that is, to zero.  There is no better illustration of this than Radiohead's brief flirtation with pay-what-you-wish downloads.  After discovering (though refusing to publicly admit) not only that most people chose to pay nothing for their critically acclaimed In Rainbows album but also that traffic in the album on illegal file-sharing networks did not decrease, the band discontinued their experiment after only three weeks.

We don't see a way to preserve the idea of paying for recorded content without some form of digital rights technology -- whether DRM, watermarking, fingerprinting, or some other technology.  This is the part that Jaron Lanier either disagrees with or still won't bring himself to admit. 

Unless digital rights technologies emerge that work the way they are supposed to, content will become free. Free content will always be available somewhere, whether legally or not, despite ongoing efforts to increase legal penalties for copyright infringement.  The only truly effective way to "compete with free" will be to keep lowering prices until they can't be lowered anymore. 

Digital rights technologies are an important tool for creating multiple economic offers, as we have said elsewhere -- alternatives to free whose diversity gives recorded content more of a chance to survive in the market.  Even the music industry's move toward eliminating DRM for permanent paid Internet downloads illustrates this point.  EMI decided to eliminate DRM on all fronts: on iTunes as well as Microsoft, Amazon, Wal-Mart, and other sites.  This gave them a jolt of short-term publicity that led to an equally short-term revenue boost.  No one outside of EMI knows for sure, but anecdotal evidence suggests that EMI hasn't really benefited in the long term. 

Universal Music Group, on the other hand, decided to eliminate DRM more selectively: for example, it launched an experiment with Amazon that eliminates DRM (while using watermarks), but kept DRM on iTunes.  This has given it more options to provide different offers to the market, which will lead to competition on more than just price.  The most interesting of UMG's initiatives during 2007 was Total Music, which we'll discuss shortly. 

The media industry is beginning to realize that it must get serious about supporting multiple business models in order to survive.  This is particularly true for music; the movie studios already understand this to a good extent.  The industry has to get the public comfortable with the idea that different sets of rights can have different values.  This is far from an easy task.  But by failing to advocate this idea over the past several years, the content industry has unwittingly endorsed consumer advocates' position: that people should be able to pay one (low) price for every conceivable content right, and that content owners' refusal to support this falls somewhere between greed and lawlessness. 

This attitude is unfair.  It represents a dramatic imbalance in the four forces that create the copyright bargain, which -- according to Larry Lessig's Code and Other Laws of Cyberspace -- are law, physics (technology), behavioral norms, and the market.  The rights afforded to the public for physical media products like books and videotapes have been limited more by their physical and temporal characteristics than by copyright law.  For example, books can't be copied easily, and you pay more to get a higher-quality one now (the hardcover edition) than for a lower-quality one later (the paperback).  You pay more to watch movies on their release date with the highest quality (in theaters) than to watch them months later on your TV screen. 

Digital technology removes these types of limitations, but it also creates the possibility of new offers for different sets of rights. Advocates of free content want to take advantage of the former but not allow the possibility of the latter.  They want all the rights made possible by technology, and they want to leave any limitations to the cumbersome, slow-moving legal system, outside of the technological realm. 

Of course, technologies alone will not fix this media industry problem -- it is primarily a marketing problem -- but technologies are necessary if not sufficient.  And this brings us back to Talal Shamoon's remarks about bad DRM.  Today's DRM is bad, for various reasons: some of it isn't very secure, some does not support much business model flexibility, some doesn't work very smoothly with portable devices, some puts users' PCs at risk of viruses, and yes, much of it restricts legitimate uses of content. 

If the content business as we know it is to survive, then it needs to find a way for digital rights technologies to get better, and quickly.  Some say that DRM is fundamentally flawed and therefore impossible to get right.  Cory Doctorow likes to say essentially that it will never work in a reasonable way because the problems are just too hard to solve; therefore it's a waste of effort to work on them.  Meanwhile, some bloggers responding to Jaron Lanier's recent article, including John Battelle, opined that the idea of paid content will be rendered obsolete by sophisticated ad-targeting technology, which, once finally brought to fruition, will show us only the ads we actually want to see, when we want to see them. 

So if we believe these people, we have one technology (digital rights) that does a mediocre job now but can't possibly get better, and another (ad targeting) that does a mediocre job now but will surely get better. 

Although it's unlikely that either of these technologies will ever achieve absolute perfection -- among other things, perfection for each requires the ability to read people's minds -- we don't really know which of these technologies will be good enough to satisfy all parties (including consumers), or in what timeframe.  The goal of showing people only the ads they want to see when they want to see them is at least as old as that of DRM, and no one knows if or when it will be achieved.  Books written a decade ago described two techno-nirvanas: targeted permission-based marketing in John Hagel and Arthur Armstrong's Net Gain, and balanced DRM in Mark Stefik's whitepaper Letting Loose the Light, in his book Internet Dreams.  Both have yet to materialize. 

What we do know is that technological progress requires investment.  Content owners' best hope of getting to workable digital rights technologies is to solve the problem of cost and value.  This is essentially the problem framed by cryptographer Bruce Schneier in his landmark book Secrets and Lies: one of the keys to designing a good security system is to determine the cost of protecting data relative to its value.  Digital rights technologies cost money, yet no one wants to pay for them.  Part of the reason for this is because no one quantitatively understands their potential value relative to their cost.  Some research has been done in this area, but it has been either too narrow or too biased to be useful. 

Put in a more general way, the economics of digital rights technologies are not aligned with market incentives.  Better alignment with incentives could lead to larger investments, which in turn could lead to more reasonable and effective technologies.  We won't know until we try.

Yet a major industry entity did try to realign the economics of digital rights technologies this past year: Universal Music Group, the largest record company.  UMG's Total Music initiative is the most important thing that anyone did with encryption-based DRM (other than drop it) in 2007.

UMG found common cause with some consumer electronics vendors: both have incentives to reduce Apple's share of the digital music market.  CE vendors need to offer better features or value than Apple does with iPods and iTunes; Total Music enables them to do both.  Total Music is not really a DRM scheme; it's a licensing deal, whereby CE vendors pay to offer on-demand subscription music services so that users can get them for free.  Although the terms that UMG negotiated with CE vendors are confidential, CE vendors are rumored to be paying US $5 per subscriber per month for rights to UMG's entire catalog.

The first vendor to take UMG up on Total Music is Nokia, which is incorporating the arrangement into its own-branded Ovi mobile Internet services.  Ovi subscribers get on-demand access to UMG's catalog for 12 months for free, after which they can keep any tracks they download.

If this works the way it should, it will be the music industry's best chance to weaken Apple's market share while keeping some form of DRM.  This, in turn, should provide the music industry with some leverage with which to create different offers and see what consumers find interesting, instead of being locked into Apple's inflexible model.

Another of the most important economic developments of the year for digital rights technologies is the User Generated Content (UGC) Principles, a document that advances the causes of watermarking and fingerprinting.  Although the immediate context for the UGC Principles is legal, its ultimate effect is economic.  We'll examine this in the context of this year's remarkable rise of these technologies in our next year-end review article.

Get DRM Watch Newsletter

Click here to subscribe to DRM Watch