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  • Published: Apr 6th, 2009
  • Category: Music
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Bang the DRM Slowly…

Two weeks ago on NPR’s All Things Considered I had a brief sound bite about DRM (Digital Rights Management) and the music industry. What you didn’t get to hear was the larger point I was trying to pull together – which is that DRM is not bad, nor is it good. It is like any tool, only as good (or bad) as it is implemented.

DRM has gotten a lot of press over the years as there is a quite vocal group who are politically/philosophically, perhaps even morally opposed to any restrictions on the use of content once disseminated. I call them the “Anti-DRMers.” They come in many forms – from scholarly archivists to Swedish anarchists. Cory Doctorow is perhaps one of the most famous anti-DRMers. Many believe that if a store-bought audio CD can be copied and burned onto a blank CD and given to a friend, or any book can be purchased, read, and passed on to a perfect stranger, ebooks should behave the same way. Anti-DRMers see DRM applied to an ebook or a digital music file as holding back violating personal freedom and jeopardizing viral sales growth.

On the surface, the anti-DRM argument looks somewhat reasonable. For example, I agree that viral marketing is enhanced when people can share content. However, when I delve into the details and the history, the overall anti-DRM argument loses effect. On NPR I noted that in the late 80’s the music and electronics industries decided not to use DRM on audio CD’s. Fast forward to the late 90’s where fat pipelines at universities enabled students to rip CD’s and connect to other students via software like Napster, freely trading songs as casually as we send emails today. Clearly the lack of DRM on CD’s nearly destroyed the music industry. It’s pretty hard to argue directly with that example.

While the lack of DRM on CD’s was a disaster, an equally disastrous move would be to suddenly retrofit the audio CD market with DRM. Badly implemented and poorly considered DRM was, and is, very bad business. That said, there were very important lessons learned from the behavior of consumers (university students in particular) that became much more important than DRM. Songs, as opposed to albums (yes, I am old and still call them albums), were valued in a way that hadn’t been seen in 20 years. Students were trading songs and some folks began to notice that there was an opportunity forming.

So what happened to the music industry, which Forrester projects will see half its income coming from digital-downloads? Did lawsuits against Napster and individuals engender a change in consumer behavior? Did universities crumble in the face of media conglomerate threats that they were enabling illegal file sharing by providing students fat pipelines? Did industry-wide standards and cooperation lead to new DRM-driven business models by the music companies? Nope, it was one simple and elegant device and the exclusive service it worked on, the iPod and iTunes. Apple forever changed the music industry.

Apple created the first truly universal, must-have, digital personal entertainment device. Better yet, not only was the iPod a killer device, it only worked with Apple’s proprietary music network, iTunes. When iTunes was released for Windows, the iPod became the only device that mattered and iTunes became the primary place where one could LEGALLY and COST EFFECTIVELY purchase SONGS. The business model of $0.99 per song was a throwback to the 1950’s – 1970’s when music stores were crowded with kids lining up to buy the latest radio hit on a single 45-rpm disk. Apple brought back a consumer favorite (inexpensive choice) that the music industry squashed years ago because it wasn’t cost effective or efficient.

Best of all, the songs purchased could only be played on the computer with iTunes or on an authorized iPod – which was the ticket to success for everyone. People coveted the world’s coolest device, they loved the software platform, and they were happy to buy music the way they wanted, legally. With all this success, a quiet phenomenon occurred – Apple had instituted really smart DRM and nobody cared or noticed. This year at Macworld, Apple announced iTunes Plus – the new “DRM-free” platform for songs. By the end of the year, all 6 million songs on iTunes will be available without DRM. The key from a business vantage point is that Apple has new pricing and file encoding (256 kbps AAC encoding) that go along with this new freedom. The price of DRM-free songs is 30% more than DRMed songs ($1.29 rather than $0.99).

This new option serves four very important purposes:
1. It establishes the concept that DRM done well is a business model, not software.
2. Apple, in an effort to please all customers and music industry partners, has created new price points (quietly announced along with iTunes Plus was a new 3-tiered pricing plan for regular iTunes where singles can be $0.99, $1.29, or $1.49). It also engenders more choice for consumers who can stay with DRM or pay more for DRM-free versions.
3. Apple also created one-click upgrading to DRM-free versions for all current iTunes customers. This gives the music industry (and Apple) a nice big upfront payment for upgrades. The music industry loves to find ways to charge consumers again and again for the same thing!
4. Finally, the new service creates larger files. This size difference not only creates better acoustics, it also makes it difficult to email the files. This may seem silly to most with any technical expertise and a desire to use pirate file-sharing services, but emailing a song is severely limited when you try sending files over 1MB. The 256 AAC encoding creates files from 2-10MB files. Cleverly, Apple has helped the music industry swallow open DRM by improving the file quality and somewhat limiting mass distribution.

The music industry has historically struggled with the digital age – first by not enabling DRM; then for all the same reasons that I cited in my last post (Why Ebooks Must Fail) that threaten the publishing industry – the lack of large upfront cash disbursements from retailers to cover the investment of creating new popular music. Apple, by leveraging the larger file size and offering the perception of freedom (no DRM), may have created a better way forward – premium pricing for greater freedom.

So where does this leave books? Well, what works for one industry doesn’t necessarily carry over to an other. Ebooks are not like music files for two key reasons. First (and perhaps foremost) consumers have shown virtually no interest in book parts – a book is generally best sold as a whole. There is no “song” model that will develop that undermines the way that books are produced. Second, ebooks have a very small file size. Emailing an ebook is a one-click operation that requires no special software, no deal-with-the-devil Pirate Bay membership – emailing an ebook to a friend is as simple as sending a report to a business colleague. Ebooks being simple text files are extremely small and are easily emailed to millions of people. This is the greatest challenge to the DRM-free folks – how do you protect what an author has produced if you have no DRM?

The book industry will need to find smart models and smart partners such as Apple to enable carefree and logical DRM. It’s already afoot – the Kindle has a brilliant new DRM that enables one to switch between reading devices (Kindle and the iPhone). Reading a book on your iPhone and want to switch to your Kindle, simply open the ebook on the Kindle and it will take you precisely where you left off. That is DRM – smart DRM, at work.

In my next piece I will follow up on this and my prior post in exploring models that combine smarter DRM and smarter publishing models that may (may) help book publishers move into the digital age – and survive.

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