www.drmwatch.com/drmtech/article.php/3453001
By Bill Rosenblatt December 29, 2004 2004 was a year of both solidification of DRM for consumer media and introduction of alternative technologies. It was also the first full year for Enterprise DRM as a market on its own. In our year-end review for 2003, we made a number of predictions for 2004 and beyond; let's see how well we did. Early Action in the Enterprise Our first prediction was in the Enterprise DRM market niche, which came into being in 2003. We expected various new entrants to appear in that market before it consolidated to 2-4 players by the end of 2004, and that was essentially what happened. A handful of players appeared in this market and were never heard from again, including Trusted Edge (now repositioned as "Automated Information Retention"), PSS Systems, and Reciprocal, which had been temporarily brought back to life by OverDrive. Two mature DRM vendors, SealedMedia and Authentica, have emerged as viable players at the high end of the Enterprise DRM market, along with one newer entrant, Liquid Machines. Yet Microsoft's Windows Rights Management Services (RMS) is seen as the de facto market leader, despite some acknowledged shortcomings in enterprise scalability, its status bolstered by the fact that both Authentica and Liquid Machines have announced -- though have yet to deliver on -- initiatives to integrate their solutions with Microsoft's. Adobe finally released its LiveCycle Policy Server product (as part of its Acrobat 7 release) after having preannounced it as early as February 2004. But we fail to see how this product will make much impact in the market, given that it handles PDF files only and that another vendor (Authentica) has already decided to move on beyond PDFs by introducing a solution for Microsoft Office file formats. Around the same time, Adobe also announced (with much less fanfare) that it was pulling its eBook packaging and e-commerce software, Adobe Content Server, off the market. More on that in our year-end review of content services. Enterprise DRM is still a very early market, and virtually anything can happen. In the language of Geoffrey Moore, although consolidation has begun, it has yet to cross the chasm into niche-market adoption. Vendors have been claiming that their solutions apply to regulatory compliance problems in such industries as financial services and pharmaceutics, but we have seen substantial evidence neither of end-to-end, DRM-based solutions for these applications nor of actual customer uptake. Two things need to occur before we would consider Enterprise DRM to be ready to cross the chasm: large system integrators must build significant practices in information usage compliance that include DRM, and DRM needs to be integrated into larger enterprise solutions such as content management. We see evidence that the former is starting to happen at certain large consultancies. As for the latter, many industry watchers are waiting for the major enterprise document management vendors -- IBM, EMC (owners of Documentum), OpenText, and FileNet -- to make Enterprise DRM acquisitions and integrate them with their content management solutions. We will go out on a limb and predict that IBM will acquire SealedMedia in 2005, because of SealedMedia's mature technology with plenty of enterprise features and its refusal to hop onto the Microsoft RMS bandwagon. Fingerprinting Takes Off Another big area of momentum in DRM-related technology this past year was in audio fingerprinting -- the identification of music tracks through psychoacoustic analysis of the actual bits in files. We stated that this technology was poised to explode but not for another couple of years. This prediction also seemed on target. In terms of practical applications, fingerprinting remained on low simmer until late in 2004, when Shawn Fanning's post-Napster startup, Snocap, which uses fingerprinting technology from Philips Labs, emerged in deals with Universal Music Group, Sony BMG Music (still not official at this writing), and Grokster. The P2P trade association DCIA (Distributed Computing Industry Association) also announced the P2P Revenue Engine, a still-hypothetical agglomeration of fingerprinting (from the vendor Relatable) and other technologies represented by the group's membership, but could not get a major content provider to bless a pilot project. 2005 should see far more activity in the fingerprinting area; see our Online Content Services review for more on this. What Is a Home Entertainment Network? We also predicted that DRM for home entertainment networks would not take off in 2004, and that was true as well. Microsoft released Windows Media DRM for Network Devices, a new version of Microsoft's media DRM technology that is supposed to be the basis for Microsoft's view of home entertainment networks: those with PCs as the control centers. Meanwhile, vendors like NDS and Thomson began introducing technologies that bring DRM-style content protection to digital cable networks, complementing conditional access methodologies and positioning set-top boxes as the loci of home network control. We expect to see considerably more action in this area in the coming year, although it will take a while for actual digital cable and satellite services to launch that use this new breed of technology. Yet it is still far from clear why most people would want a home entertainment network, or if so, what form such a thing might take. 2004 saw consumer electronics makers -- trying as always to stay one step ahead of shrinking profit margins in too-competitive product categories -- introduce lots of new products in hopes that any of them will take off. With the basic "plumbing" of home networking still requiring expertise beyond that of most consumers, we don't see this situation changing much in 2005. We do expect to see many home entertainment network products sold for the 2004 holiday season turn up on eBay in the coming year. Meanwhile, the industry is trying to lay the groundwork for longer term growth in this area through standards initiatives; see our year-end report on that for more. The Coming Patent War The DRM technology prediction we made a year ago that was off base was about InterTrust. That company, one of the original inventors of what we now call DRM, was jointly acquired by Philips and Sony in 2002, and we expected 2004 to be the year in which InterTrust leapt back into prominence with a new set of DRM technology. While it did leap back into prominence, it did so not through technology but by prevailing in the settlement of a patent lawsuit against Microsoft, to the tune of US $440 Million -- thereby giving its new owners a cash profit. The only actual technological contribution InterTrust made during the year, albeit an interesting one, was in the area of DRM interoperability; see our year-end DRM standards review for more on that one. Yet InterTrust's patent suit settlement had far more impact on the industry. In fact, it may have been the most important single DRM-related event of 2004; it was the equivalent to the assassination of Archduke Ferdinand in Sarajevo in 1914 -- the shot heard 'round the world that will have started a war... for that is what the DRM patent scene will soon resemble. Vendors have made very little money over the years solely from the sale of DRM technology, so patent licensing -- or lawsuit settlement -- may be the only viable source of revenue left for "pure play" DRM vendors. At the same time, DRM has existed as a field of technology for roughly a decade, and lots of IP has been claimed over those years, some of which was never identified as "DRM" in the first place. Disparity over terminologies used and contexts assumed in these patents only exacerbates the situation by making it all the more ambiguous which claims in which patents apply to which real-world implementations. The InterTrust settlement proclaimed to holders of DRM-related IP that there is gold in them thar hills. We can only guess at how many licensing discussions these IP holders are currently having with entities that have implemented DRM-enabled services, but we know that several of them have come out of the woodwork since the InterTrust settlement and that a trickle of litigation has started which should grow into a river over the next couple of years. MPEG-LA, an independent organization whose original business was licensing IP related to MPEG compression algorithms, is leading an attempt to bring some order to this impending chaos. It is establishing a patent pool for DRM, but as we have said, this will take a while and is not guaranteed to have the desired effect. Patent holders deserve to be compensated for their innovations, and innovators of the previous decade should certainly not be penalized for prescience. Unfortunately, things will get worse for some time before they will get any better, and risks lie ahead for those who implement DRM without due diligence on IP. Consumer Media Consolidates Meanwhile, in the mainstream media arena, Microsoft and Apple have broken away from the pack for PC-centric music services, while the video market remains inconclusive. Last year, we took some criticism for dealing with Apple's FairPlay DRM technology as part of the service that it powers, iTunes, rather than as a platform technology. Yet Apple's strategy has continued to bear this perspective out. It has chosen to keep its FairPlay DRM technology to itself, with the exceptions of a deal with HP to manufacture iPods and an isolated licensing deal with Motorola that we believe will have little impact. When RealNetworks figured out how to create files in FairPlay/QuickTime Audio format for playback on iPods, Apple responded by creating a new version of the iPod that will not play the RealNetworks-generated files. Microsoft's Windows Media DRM, on the other hand, powers by far the largest number of online music services. But as most of those services are utterly undifferentiated from one another and should ultimately disappear, we don't view that statistic as significant. More interesting is the new Windows Media DRM for Portable Devices, which is supposed to make it easy for service providers to offer portability of content rights onto a wide range of portable devices. When compared to FairPlay and iTunes, this technology is more complex and involves multiple players instead of just one; therefore, it will take a while until such portability services are available, during which time Apple could come up with further innovations to maintain its large market share. The other two significant DRM platform players on the PC platform are Sony and RealNetworks, and in the music market at least, their significances are waning. RealNetworks has for a while been shifting its emphasis from platform (Helix DRM and RealAudio/RealVideo format) to service provider, with some success. Sony, whose strategy is based on its proprietary ATRAC format and OpenMG DRM technology, made a series of missteps in the music market from which it may have a hard time recovering. We'll discuss these in our year-end summary of online content services. We expect the most interesting new developments in DRM technology for consumer media next year to be outside of the PC market, in mobile and set-top-box-like devices. We'll discuss the mobile scene in our other year-end reviews. Copy Protection: Setbacks and Controversies Finally, we feel compelled to mention developments during 2004 on physical-media copy protection. Second-session copy protection for CDs suffered a number of setbacks. SunnComm and Sony were embarassed as easy hacks were found to each of their copy protection technologies -- through the PC space bar and felt-tip pens respectively. Sony withdrew its solution from the market. As for SunnComm, it quite properly boasted about having been used on a Billboard No. 1 album (by the band Velvet Revolver), implying that the use of copy protection did not seem to deter sales of this BMG title. But there is some controversy over whether some of the BMG albums whose shrinkwrap advertised the presence of SunnComm's MediaMax technology actually included it, or whether BMG discontinued use of the technology after the shift-key debacle was publicized in the media. SunnComm claims to have fixed the problem in a subsequent release of its technology. However, after BMG merged with Sony Music, the combined Sony BMG Music began ramping up its experiments with different copy-protection technology from the UK-based firm First 4 Internet. It had been using a form of First 4 Internet's technology for its pre-release CDs and now intends to deploy it in US production releases in early 2005. Meanwhile, Microsoft began a series of discussions with major and independent record labels to help it design copy protection features that it will build into the next major release of Windows, code-named Longhorn, which is now expected in late 2006 but whose design window is due to close shortly. The non-mainstream media made these discussions sound like a cabal between the RIAA and Microsoft, but in reality, not only would such a thing be a blatant violation of antitrust law (of the type that an organization like the RIAA knows to avoid), but the majors have divergent opinions about CD copy protection. However, in the main, the majors are insistent on pushing ahead with it in the US market. In contrast, independent labels are not in favor of CD copy protection. We should point out that the reasons for this difference in attitude go beyond philosophical ones about treating customers a certain way. Copy protected CDs have "second sesssion" files that copy-protection software forces a PC to read instead of the "first session" files in standard CD audio format. Second session files can be in DRM formats, such as (typically) Windows Media Audio. They also have come to include extra content, such as video clips, interviews, JPEG photos, alternate takes, and so on, as compensation to consumers for restrictions on copying. Such bonus content is coming to be expected in copy-protected CD releases. Simple economics says that this is a hardship for indie labels: the cost of producing bonus content is much easier to amortize over a million copies of a big-name major release than it is over ten thousand copies of a typical indie release. There were also a few modest developments in the area of advanced copy protection for DVDs -- whose existing copy protection (CSS) was famously hacked but which is protected under the DMCA 1201 law. Two approaches to advanced DVD copy protection emerged during the year, both of which derive from the basic idea of inserting digital watermarks into the content -- an idea that was considered during the original DVD design discussions but rejected by consumer electronics vendors as too expensive to implement. Both approaches, from Philips Research and the Cinea division of Dolby Labs, are intended for use in limited-distribution scenarios, such as the distribution of review copies of movies to critics or awards judges. We expect this trend to continue, though we do not see it extending to consumer DVD distribution; we do not believe that forensic watermarking scales up that far.
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