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A Few More "Thoughts on Music"

Apple's Jobs left a few music downloading scenarios off his list. Here's a suggestion for testing his proposal to ditch DRM

The first time I heard the phrase "digital rights management" was in 2000. It came from the mouth of Dick Brass, who at the time headed up Microsoft's (MSFT) automotive computing division.

I didn't like the phrase from the start. The reason is, it made me think of credit card bills, and nothing irritates me more than credit card bills, especially when they're getting bigger. The context was a breakfast chat over Microsoft's ideas for in-car computing. Cars would one day have entertainment centers playing digital music and video files, and would need some kind of "digital rights management" technology, Brass explained. That way the seller could keep track of the media consumed in my car and charge me—and my card—accordingly.

The Jobs Proposal

My disdain for DRM hasn't diminished. And now the phrase is front-page news, following the Feb. 6 philosophical manifesto from Apple (AAPL) Chief Executive Steve Jobs (see, 2/7/07, "Steve Jobs' Music Manifesto"). For more than three years Apple has operated the most successful example of how digital media can be sold over the Internet and still be protected by DRM technology that inhibits it from being copied and redistributed in violation of copyright laws. Now, Jobs says he's ready to "wholeheartedly" ditch DRM—if the major recording labels, including EMI and Sony BMG, can be convinced that they no longer need it.

Jobs' essay, "Thoughts on Music," lays out three alternatives for the future, then goes on to explain why some won't work. First, he says, the market can continue as it is. Apple, Sony (SNE), and Microsoft all use DRM technology to limit where purchased downloaded songs can be played. With a market share of 80% of the music download business, Apple is clearly the big dog in this race and for now could afford to maintain the status quo. Its iTunes Store—which operates at a small profit—is essentially a marketing tool to sell the hugely profitable iPod. The market could continue like this indefinitely, he says, and from his point of view, he's correct. Each year brings better players and more choices from the various digital media vendors.

But what's missing is interoperability. Songs purchased on iTunes simply won't play on non-iPod players, like Microsoft's Zune or SanDisk's (SNDK) Sansa. Nor can songs purchased from other online music stores easily be played on the iPod—all thanks to DRM.

Another option outlined by Jobs is for Apple to license its own flavor of DRM, a technology known as FairPlay, which limits the number of computers on which songs purchased from iTunes can play and keeps iTunes music from being played on rival players. The problem, Jobs explains, is that since FairPlay is based on secrets, and licensing requires that those secrets be revealed to others, the risk of those secrets being compromised is higher.

Ditching DRM

Then there's the third option that got all the headlines and sent shockwaves throughout the music industry: Dump DRM entirely. If the record companies stopped requiring DRM, Apple would sell only unprotected music on iTunes. Using DRM doesn't stop piracy, he says. And he's right. In fact nothing will stop piracy, and regardless of the best laid plans, anyone thinking realistically about all this should just assume that it will continue more or less unchanged for the foreseeable future—that is, until copyright infringement becomes a capital crime.

The music industry hasn't issued any formal response to the Apple music manifesto, but in the likely event it doesn't fully side with Jobs, I'd like to throw out a few scenarios Jobs left off the list.

The first concerns FairPlay. If in fact this is the best DRM there is at the moment, and if it's one that the record labels like best, then the best thing that should happen to it is that it become an industry standard. And the way that could happen would be for Apple to forgo any financial interest in licensing it.

A FairPlay Solution

My solution? Spin off FairPlay. Call a huge summit involving all the major companies that need to be involved, and turn over all the patents and all the secret sauce concerning FairPlay to a nonprofit, Apple-agnostic industry consortium. Make it responsible for the maintenance and future development of FairPlay. Companies that join the consortium will devote some of their resources, including smart people, to ensuring that FairPlay stays a step or three ahead of those individuals who consider it their mission in life to crack DRM schemes.

Apple has a history here on the hardware front, and to find it you need look no further than the Firewire port on your Mac. The technology behind Firewire was invented at Apple and then turned over to an industry consortium that still exists. It's called the 1394 Trade Association (1394 refers to its designation by the Institute of Electrical & Electronics Engineers.) Apple would be seen as the savior of the industry.

"Nonpersistent" DRM

There's another option that involves a different approach to copyright protection. It's called "nonpersistent" DRM. Karl Hirsch, the CEO of a DRM technology firm called Protexis described it to me like this: When you buy a song from an online store, it comes protected in such a way that it goes only to the person who bought it. Once you prove you're the person who paid for it, the song is "unwrapped," after which you have essentially no limits on what you can do with it. Put it on an iPod. And a Sansa. And a Zune, if you like. Plus three computers you have lying around the house—whatever suits your fancy.

This is pretty close to the way things works with a CD now. When we buy a CD, we can make copies for friends on a cassette tape or a recordable CD. A friend visiting with a laptop can rip the tracks from your CD to his computer, without having to pay the record label for the rights (although the industry considers this is a no-no—but that's another story, or column as the case may be). But the most important thing is that most people who buy a CD use it honestly after the initial transaction takes place.

And that transaction would be tracked by an independent third party, responsible to both the music retailer and the labels to make sure everyone gets paid. If Joe's Online Music Bistro sells 10,000 copies of the latest Norah Jones single, while iTunes sells 500,000 copies, each vendor's numbers get reported to the label the minute the song gets "unwrapped" by the consumer.

Under this nonpersistent model, the label and the artist still get paid for the initial transaction, which is by far the most important transaction, after which the consumer operates under an honor system, which in truth most people follow.

Most people. But not all people. You can augment a nonpersistent DRM system by adding limitations to the file once it has been unwrapped, Hirsch says. You could create a second layer within it that limits the number of copies you can make, but which is device-agnostic, meaning you could play that limited number of copies on whatever combination of devices you chose. Naturally Protexis offers just such a service—in the outlined scenario it would be the trusted third party that tracks and reports on sales. Hirsch's idea is certainly interesting.

A Post-DRM Beta Test

But here's the one I like best. Let's subject the elimination of DRM to a market test. It's happening on a limited basis now—but let's make it large scale. Let's call it a public demonstration of what the post-DRM world might be like. Let's get all the labels, and all the online music vendors together. Select a handful of album releases that are expected to have broad crossover appeal—not necessarily the blockbusters, but ones that are expected to be solid sales performers. Release them to all the interested online music vendors on unprotected MP3s for a limited period—say, six months. Then just wait and see what happens.

Consumers will do what they do best: Vote with their wallets. Sure, some may push the songs to their favorite file-sharing piracy network. But most won't and will like the option of having music that can be moved to whatever device they wish to use. And those who like that freedom will be back for more again and again.

Steve Jobs may be onto something here. More often than not his instincts have proved to be correct. And for that reason, record label executives should not be so quick to dismiss his "thoughts on music."

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