Manage for Success: Digital Rights Management, Newsletter #70, February 2007

"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.

Copyright 2007 by Keith Holzman, Solutions Unlimited. All rights reserved.



Lots of ink has been spilled during the last few weeks on the topic of DRM -- Digital Rights Management. Much of it was inspired by a position paper from Steve Jobs that was published on Apple's website on February 7th.

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Titled "Thoughts on Music," Job's piece is required reading for any music executive concerned about digital distribution and how best to protect their artists and music, yet be fair to the public by making music easily purchasable by consumers.

Digital Rights Management is a form of electronic lock that keeps consumers from making unlimited copies of a protected song or work. In order to prevent illegal copying, DRM systems allow only authorized devices to play protected music. Apple's DRM, called Fairplay, "allows users to play their DRM protected music on up to 5 computers and an unlimited number of iPods." The problem to many people, though, is that Fairplay protected songs can only be played on iPods -- not on any other form of MP3 player.

In fairness to Apple, something similar applies to other DRM systems. Microsoft has a few such schemes. For example, their Windows Media PlaysForSure works on certain systems, but curiously enough not on Microsoft's own, recently launched, Zune player, essentially rendering as unplayable songs previously purchased from sites using PFS. Last week Microsoft announced yet another DRM platform called PlayReady. It's no surprise that songs using their various forms of DRM will not play on an iPod.

Some form of DRM was a key requirement of the four major label groups in their original negotiations with Apple. Universal, SonyBMG, WMG and EMI represent about 70 percent of the US music market, and the agreement enabled the creation of the iTunes Store and thereby an enormous new market for legal sales of music.

Many in the industry have suggested that Apple license Fairplay to any other music seller who wanted to protect downloaded songs, but Apple's concern is that making it available to others would convey the technology to too many people, so that the secrets would probably be leaked. Once the locks are broken, Fairplay secured songs would lose their protection.

In his statement, Jobs recommended elimination of all forms of DRM, including Fairplay. This may be self-serving to Apple, saving them a lot of time and trouble ensuring that the DRM locks keep functioning properly. Fairplay had previously been "broken" a couple of times, necessitating updates to the iTunes Music Store, the iTunes software, and the iPod software -- obviously a costly situation for Apple. Note that there are many advantages to the consumer in terms of smooth, flawless interactivity when one company controls the store, the software, and the hardware. Elimination of Fairplay also puts Apple in a very consumer-friendly attitude, in contrast with the position of the major labels.

Jobs also noted that less than three percent of music on the average iPod was purchased from the iTunes Store and is protected by Fairplay. The balance were either ripped from CDs or illegally downloaded without purchase. Therefore 97 percent of what's on the average iPod is DRM-free.

Note that all CDs sold are free of DRM (except for the SonyBMG Rootkit debacle.) Jobs: "So if 90 percent of their music is DRM free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appears to be none."

Music from independent labels sold on sites other than the iTunes Store is generally free of DRM. For example, all music sold by eMusic is unencumbered.



A brief interruption.

If you need advice determining your company's best approach to DRM, or working out other complex aspects of the digital distribution spectrum, call on my expertise in dealing with current technologies and how they apply to the recording industry.

Label executives regularly deal with these and a great many other problems, and after many years of record industry experience at labels large and small, I've learned how to guide them over the many hurdles the business is prone to.

Let me help you as I've helped so many other labels "manage for success." Email me at <> so we can discuss how I can improve your business.

Should you be thinking of starting your own label, I suggest you get my book "The Complete Guide To Starting A Record Company" which can be ordered as a downloadable eBook in PDF form, or as a printed, spiral-bound volume. Download the Introduction and read the complete Table of Contents at <>.



One needs to be aware that all music subscription plans, such as Rhapsody and Napster, require some form of DRM. Without it, one could keep forever all music downloaded from the service without paying monthly subscription fees, essentially destroying those business models.

Note that Apple is facing many DRM-based regulatory hurdles in much of Europe. For example, Norway's Consumer Ombudsman stated that Fairplay violated their Marketing Control Act. Fairplay is facing similar legal problems in Denmark, Finland, France, Germany, Holland, and Sweden.

In contrast, a recent Jupiter Research study, released before Jobs' statement was published, looked at attitudes to DRM systems at European record labels. Per BBC News "many of those responding said current DRM systems were 'not fit for the purpose' and got in the way of what consumers wanted to do. Despite this few respondents said DRM would disappear in the near future." The study also noted that "about 54 percent of those executives questioned thought current DRM systems were too restrictive. Also, 62 percent believed that dropping DRM and releasing music files that can be enjoyed on any MP3 player would boost the take-up of digital music generally."

Interestingly, after Jobs' manifesto was posted, only one major industry executive stated a position. That was WMG's CEO Edgar Bronfman Jr. who emphatically came out in favor of DRM with this statement during WMG's February 8th earnings call: "the notion that music does not deserve the same protection as software, television, films, video games, or other intellectual property, simply because there is an unprotected legacy product available in the physical world, is completely without logic."

In contrast to Mr. Bronfman's position, industry rumors indicate that EMI may be willing to eliminate DRM entirely, although no official statement has been forthcoming.

TidBITS' Adam C. Engst in response to Jobs writes "Why This Letter, and Why Now? …. Apple has never before come out against DRM in music so plainly. Also, even if these attitudes aren't completely new, Apple hasn't previously shown such aggressiveness in promoting them and assigning the blame for DRM to the music companies. It's possible that the letter is in part a PR effort to paint Apple as a friend of the consumer, in contrast with the big bad music companies, thus giving Apple the high moral ground with customers and establishing Apple's position in advance of any large-scale movement on the part of the music companies to offer unprotected tracks via other online services, as EMI has done with Yahoo."

About eight years ago the Industry couldn't reach agreement on how to deal with selling music over the Internet, and did absolutely nothing. Seeing a formidable vacuum, the original Napster let the digital cat out of the bag, and no form of Digital Rights Management is going to be able to put the escaped feline back in.

In commenting on this subject, The Economist magazine concludes, "Mr. Jobs' argument, in short, is transparently self-serving. It also happens to be right."

Although I'm concerned about the rights of performers, lyricists and composer, I have to agree with that statement.

Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.



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Copyright 2007 by Keith Holzman, Solutions Unlimited. All rights reserved.