Wednesday, February 14, 2007

DRM didn't work for Apple, will it work in TV?

Back in 2007 when this was published in Marketing magazine, DRM was rapidly becoming an embarrassment for Apple and they dropped it soon after.  It seems that as Santayana said, "those who cannot remember the past are condemned to repeat it"; with Time Warner prevented from giving customers access via their iPads to channels they'd already paid to view.  They're at liberty to view in the kitchen or the living room.  Just not on an iPad in either room.  My guess is this won't last either, as customers just won't wear it.

Here’s the deal.  I’m going to sell you a CD that you really like, but there are a few conditions.

You can only lend it to your friends whilst they’re in your house, once you’re bored with it you can’t sell it on eBay or give it away.  You can only play it on the machine I sell you, not on any others (so forget buying a competitor’s machine next time, because your whole record collection will be useless).  Oh, and in a few years it won’t work anyway, because once you’ve changed machines a few times it won’t play any more.  And you’re going to change machines, because the batteries on the machine I sold you often stop working after 18 months.

I would be amazed if you didn’t tell me where to stick it.

But millions across the world have signed up to terms like this, as they download music from the iTunes website.

Digital Rights Management, or DRM, is the encoding given to music files that prevents or limits their being copied, and right now it’s causing a storm in the digital world.  

When the downloading of music started, it was mostly based on illegal filesharing – people allowing others to copy music they either owned or had themselves copied from others.  Services like Napster (now reinvented as a legal music service) and KaAaA enabled this to spread like wildfire, to the great concern of the music industry.

As they had when cassettes were launched, the music industry resisted the new technology, fearing its impact on sales.  

Then along came Apple with the iPod, and crucially the iTunes store.  The iPod used a different file format - .M4P – and for the first time, music companies could exercise real control over what happened to their music once it left their hands.  Within weeks, Apple were selling millions of legal downloads – over two billion by last month.

So with business seemingly booming in the download market, everything in the garden looks rosy.  Except it isn’t.

Apple are creating a timebomb – as users approach their fifth device, their music libraries are starting to die.  Consumers’ awareness is growing that they’re being taken for a ride, and there’s increasing resistance from consumer groups, with complaints from groups in France, Germany and the Netherlands.  They’re also the target now of an antitrust case in the US, alleging that the lack of interoperability that Apple forces upon its users is restraining competition.

On top of all that, business isn’t so good either.  Despite soaring sales of digital music players, downloads still represent only 10% of music sales.  And according to a Forrester analysis, iTunes revenues have fallen substantially during 2006.

Finally, the DRM just doesn’t work.  Every iTunes exclusive track has been available for illegal filesharing within minutes of release, and every copy of iTunes allows users to circumvent the restrictions by burning the music back to CD.  It’s beginning to look like DRM is just an inconvenience for honest consumers, and no more than an elaborate joke for the technically capable.

So in the light of this the recent call by Steve Jobs, CEO of Apple, for music companies to drop their insistence on DRM is perhaps less surprising.  

Many mobile phones now come equipped with an .mp3 player, as consumers prefer to carry just one device – and that’s hitting iPod sales.  At the same time, content owners are beginning to relax their attitudes to DRM.  Yahoo Music struck a deal with Sony/BMG to let it sell an unprotected .mp3 version of a Jessica Simpson track as a test, and after EMI-controlled Norah Jones followed suit, EMI have announced that they’re dropping DRM from all future CDs. 

As others abandon DRM, Apple know well that if they don’t put in some nimble footwork, the competition authorities are going to start seeing them as the cheerleader for restrictive trade – and with years of defining themselves as ‘not Microsoft’, that’s just not a place the Apple brand wants to be in.