IPTV Security

The biggest advance in DRM platform technologies in 2006 was in the IPTV space.  After a few years of much anticipation amid few deals actually closing, at least some of the vendors in the IPTV content protection space started to gain traction in the market. 

IPTV content protection is essentially a four-vendor horse race, consisting of two older vendors, Widevine and SecureMedia, and two newer ones, Verimatrix and Latens.  Judging by press releases about customer installations, the two latter vendors are breaking away from the pack.  All of these solutions use proprietary encryption schemes to protect IPTV content as it flows from servers to set-top boxes.  Verimatrix also incorporates watermarking, as does Widevine through a partnership with Cinea -- on which more below.

Both Verimatrix and Latens garnered several new customers during 2006; Widevine and Securemedia didn't do as well. Growth in the IPTV market is taking place with smaller telecoms companies, throughout mainly northern Europe and the U.S., that are launching so-called triple play (voice, data, and IPTV) services.  The true sizes of installed bases are hard to come by, because the carriers won't release them, but it is safe to say that they are all small installations.  In any case, we expect that this market will continue to grow rapidly in 2007 before it consolidates further into the future.

Music Market Fragmentation

The more widely publicized news in DRM platforms was about the proliferation of proprietary DRM technologies integrated with devices and Internet content services, in the manner of Apple's iTunes.  Microsoft introduced its Zune portable music player in November, with a DRM that is not backward-compatible with Windows Media DRM.  A bit earlier in the year, RealNetworks revived its own Helix DRM by getting SanDisk to build it into a special line of portable music players meant to be used with Real's Rhapsody music service.  Both Rhapsody and Microsoft' Zune Marketplace are "side-loading" services, meaning that users must download content to PCs and transfer them to their portable devices. 

This fragmentation is a disservice to both consumers and the music industry.  The focus is on dislodging Apple's predominant market share with iTunes, so that other platform providers like Microsoft and RealNetworks can deliver more compelling and easier-to-use systems and draw users away from Apple.  The music industry shares in the goal of dislodging Apple, but it ought not to appreciate the way that consumer electronics companies are going about it.  In general, the music industry would like to see a world where they control the economics of digital music, not device makers or service providers.  Fragmentation may or may not dislodge Apple, but it will inevitably alienate consumers and drive them to illegal sources of content.

As for Apple itself, it only strengthened its position with the music industry, as it renewed its licenses with all four of the major labels for iTunes in April -- having apparently given the labels none of the concessions in technology or business model support that they had sought.  And as we discuss in our year-end review of legal issues, Apple dodged a legal bullet in France that would have forced it to open its technology for interoperability with other devices and services. 

Yet as we like to say, the market tends to supply solutions to its own problems more efficiently than laws do. In this case, the opener of Apple's closed world may be none other than legendary DRM hacker Jon Lech Johansen.  In October, Johansen's business partner Dominique Farantzos revealed that their new company, DoubleTwist Ventures, is introducing technology to open up the iTunes/iPod/FairPlay stack in two ways.  First, they have software that enables service providers to create encrypted files in FairPlay format -- like what RealNetworks did with Harmony a few years ago but more generally applicable.  Johansen accomplished this through clean-room reverse engineering, which may well be legal. 

DoubleTwist's other technology purportedly lets non-iPod devices mimic iPods so that they can work with iTunes -- the legality of which is more dubious.  In fact, there are signs that the company is already concerned with legal ramifications: for example, its website is now on a .eu (European Union) domain, even though it is nominally located in California.

Still, if and when DoubleTwist gets clean legal and technical bills of health, it will be very interesting to see what kinds of deals they do with service providers and device makers next year, with the (public or private) encouragement of the music industry.  If the music industry cannot fix its Apple problem, then its only recourse may be the radical one of dropping encryption-based DRM and moving to a less restrictive model, such as acoustic fingerprinting or watermarking.  That may be the only way to undercut Apple in a way that resonates with consumers.  Record companies will need to figure out whether such a move would be economically worthwhile.

The device royalty deal that Universal Music Group made with Microsoft over Zunes is in line with this thinking.  Microsoft has to pay Universal Music Group US $1 for every Zune sold (on top of conventional music royalties), which is the private-industry equivalent of the type of device levies that exist in most of Europe and Canada.  This is an admission that most consumers will use Zunes less to buy new music than to rip their CDs and obtain music other ways.

Optical Discs

Turning to the optical disc world, the AACS specification for DRM in Blu-ray and HD DVD devices is still not finalized, after promises were made to do so earlier this past year.  The movie studios succeeded in getting a large range of features for content protection and implementation of new content business models built in to AACS without any apparent subsidy to the vendors that make the devices.  But lack of agreement on various features, such as controls on resolution in digital outputs, has the result that devices are shipping without those features.  Discord over the AACS spec magnifies the existing format-war problem with Blu-ray and HD DVD.

As a result, market uptake for both formats was negligible in 2006 -- although many are saying that lower prices and brisk sales of high-resolution HDTV sets this holiday season will lead to demand for high-definition disc players next year.  But for now, the DVD Copy Control Association (DVD CCA), which oversees the licensing of DVD player/recorder technology that uses the CSS encryption scheme, is finding ways of expanding the DVD's utility to keep the format more relevant.  In August, the DVD CCA announced that it is in the process of adding a download-to-burn feature to its license. This will enable movie-download sites like Movielink and Amazon Unbound to let users burn their downloaded movies to DVD.  The change in the DVD CCA license is necessary because the license sharply restricts what DVD players are allowed to do with encrypted content.  The DVD CCA is also considering even broader rights, such as a "managed copy" right similar to that included in AACS.

The other optical disc-related area is copy-protected CDs.  In the US market, at least, two of the three major CD copy protection technologies were affected by legal actions against SonyBMG Music, as we discuss in our year-end roundup of legal issues, and the third, from Macrovision, was quietly taken off the market after being dumped by EMI, its only major US customer.  This type of technology never really worked well, and we would say that it has come to its end.

Watermarking and Perceptual Hashing

Finally, 2006 saw substantial advancements in digital watermarking and perceptual hashing.  We'll discuss much of this in our year-end review of DRM-enabled content services.  The most interesting watermarking technology to appear in 2006 was Running Marks, from the Cinea division of Dolby Labs.  Running Marks is a form of the technology known as fingerprint or transactional watermarking: embedding into the content the identity of the user or device receiving it. 

Although this idea dates back several years and is much more effective than general watermarking for forensic content control, one problem with it has been the time and complexity of inserting watermarks into content on users' devices.  Apple probably uses fingerprint watermarking for its film and television downloads, but it's possible to insert such watermarks into content as it's downloaded onto PCs or Macs without much discernable delay.  In Germany, H2 Media Factory launched a download site for PCs called Akuma, which features music from independent labels and uses fingerprint watermarking technology from the Fraunhofer research labs.

Fingerprint watermarking is more difficult with portable devices, especially for shorter-form content. Cinea's Running Marks is a breakthrough solution to this problem that reduces the computational complexity of fingerprint watermark insertion to the point that a portable media player could support it with no additional hardware.  Although Cinea is currently targeting IPTV set-top boxes -- as mentioned above, it has an integration with Widevine's IPTV security technology -- it could make fingerprint watermarking attractive in the next generation of portable media players, such as those that support WiFi or mobile digital broadcast standards like DVB-H.

In the related world of perceptual hashing, 2006 is the year in which the audio version -- also known as acoustic fingerprinting (unfortunately, given the name clash with fingerprint watermarking) -- gained approval by the major music companies in services like iMesh and even the social-networking giant MySpace.  Now there is a rush to develop perceptual hashing technology for video, so that sites like YouTube can detect and uploads of copyrighted material..

Video fingerprinting is a harder problem than acoustic fingerprinting for music.  The fingerprints (hash values) are more difficult to calculate and must be impervious to a wider array of techniques for fooling them (i.e., altering a video clip enough to cause the hashing algorithm to compute a different hash value).  New television content appears at a greater rate than new major-label music (think daily newscasts and talk shows); hash values must be computed, stored in databases, and distributed. 

Still, video-sharing sites like YouTube and GUBA feel pressure to adopt some sort of proactive technology for stopping users from uploading copyrighted material, as we'll discuss in our year-end legal review.  GUBA has been developing its own technology, which it calls "Johnny" (we suspect the name is a pun on "Goumba Johnny," a popular New York City radio personality), and acoustic fingerprinting vendor Audible Magic is working with former RIAA technology chief David Stebbins on a different scheme, called Motional Media ID, which he claims solves the problem of efficient hash value calculation.

We suspect that 2007 will be a year of significant developments on both watermarking and perceptual hashing fronts, as applications and media industry confidence in them continue to grow. The ways in which these technologies will coexist (or not) with "classic" encryption-based DRM are unclear now and should be fodder for innovation in the coming year.

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