UMG's watermarks will simply identify the retailers offering the tracks, such as Amazon.com, Best Buy, RealNetworks, or PureTracks (Canada), so that if those files show up on P2P networks, UMG will know where they were purchased.  They will not be so-called transactional watermarks, which contain the identities of downloaders (or their devices) -- at least not initially.  A recent revelation that Apple's DRM-free iTunes tracks contain purchaser identifiers in openly accessible file headers has led to accusations by privacy advocates that the music companies are merely swapping out encryption for privacy infringement. 

Yet embedding identities of downloaders in watermarks has less impact on privacy than putting plaintext user or device IDs in file headers.  It is also far more effective as a forensic tool for deterring content misuse than schemes such as UMG's. Identities cannot be retrieved from files without using watermark detection technology, and they cannot easily be altered or removed from files (as plaintext header data can).  Transactional watermarks are already in use in various applications, such as in IPTV security schemes from vendors like Cinea and Verimatrix.  We expect the use of transactional watermarking to increase in the near future.

Activated Content's technology is another example of digital watermarks used to track distribution of music content.  It uses a proprietary watermarking scheme and is a licensee of Digimarc's technology.  Activated Content's existing solution is used by record labels primarily to control pre-release music distribution to radio stations, reviewers, and so on -- analogously to Cinea's use of watermarks for DVDs sent to Oscar voters. 

Activated Content's announcement yesterday concerns watermarking technology that Microsoft has been developing in its research labs.  The announcement does not include details about the technology itself, but it suggests that the technology is applicable to user-generated content (UGC).  There is certainly a great opportunity to make watermarking as easily available to independent musicians as it currently is for creators of still images, thanks to technology from Digimarc and others that is integrated with popular imaging software such as Adobe Photoshop. 

The music industry is definitely going to adopt watermarking more universally and aggressively than ever, now that the major labels are in the process of loosening their insistence on encryption to protect content, and now that indie musicians are getting past the novelty of social networking and starting to address questions of how they get paid and prevent content misuse without inhibiting wide distribution and fair use. 

Questions remain about what information watermarks will contain, whether standards will be used, and to what extent watermarking will be drawn into copyright litigation and lobbying the way acoustic fingerprinting is now.  Regardless, we expect the pace of developments in digital watermarking to pick up in the coming months.

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