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The slow death of DRM

It's bad for business

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Column The DRM walls are crumbling. Earlier this week, Steve Jobs called on the major record labels to allow online music sales unfettered by digital rights management restrictions.

Today, the Wall Street Journal disclosed that EMI is in negotiations with several digital music services to sell unprotected MP3s of its catalogue. Jobs was motivated at least in part by legal actions against Apple in Europe and the US as discussed below. But whatever his motivation, Jobs is right: DRM has been a disaster for the recording business. This article will outline the brief but sad history of DRM, the current legal attacks on it, and the reasons why the recording business would be far better off without it.

A disaster of historical proportions

When I was still a lawyer at Sony Music, before the BMG merger, we had a business affairs summit. The year was 1999.

This was the first year our annual discussion covered digital music. It was led by an attorney specialising in litigation. The attorney used a projector to show us the original Napster. She asked for someone to name a song. She typed in the title and it immediately came up. She clicked the keyboard again, and boom, the song downloaded to her computer. And it was completely DRM-free.

That is, the song could be copied, ripped, mixed, and burned freely. Then she showed us Sony's digital offering. A consumer could "download" Mariah Carey tracks for $3 each, but because of the DRM, you could only listen to it on your desktop. I seriously doubt that more than a few poor souls took advantage of Sony's offer, and this feeble initiative was quickly withdrawn.

You could argue that the price was the big difference. But if Sony had offered the same product as Napster at a reasonable price, then the music business might now be leading the digital revolution and raking in money.

But instead of truly competing with "free," Sony chose to sue Napster. That strategy lead to the emergence of other P2P services which simply took its place.

Three years later the major labels finally took their first serious stab at competing with P2P by launching MusicNet and Pressplay. But both services were mired by, and ultimately destroyed by, DRM. Neither Pressplay, from Sony and Universal, nor MusicNet, a service from EMI, BMG and Warner, allowed downloads or portability, thanks to DRM. They were stillborn and died quickly.

More recently, Sony BMG tried applying DRM to CDs and that led to public scandal, dozens of lawsuits, losses of millions of dollars and, in large part, Andy Lack's exit as head of Sony BMG. The DRM used in that case not only attempted to deter copying, it installed a hidden spyware on consumers' computers called rootkit that created security holes that allowed viruses to break in. Attempts to remove the spyware by some customers damaged their PC.

Sony BMG had to recall millions of CDs, and was forced to pay $4.25m to 39 states and the District of Columbia - and much more to consumers - to resolve various lawsuits. The good news is the extreme stink of this debacle will deter Sony BMG and any other majors to implement CD-based protections in the future.

Consumer litigation against DRM

Steve Jobs was the first industry figure to convince the labels to offer downloads without many restrictions on copying and burning. However, the parties agreed to deploy Apple's FairPlay DRM, which prevents songs purchased at the iTunes store from playing in any other player than the iPod because of Apple's refusal to license FairPlay to other music services, or in turn, license competitors' DRM technology. European legislators have been giving considerable attention to this "interoperability" failure. But Norway recently actually declared Apple was engaging in anti-competitive behaviour, giving the company until October to repair the situation or shut down. In addition the campaign has been joined by consumer lobbies in four other countries: Sweden, Denmark, France and Germany. If these initiatives are successful, they could be enough to break FairPlay and make Apple either license FairPlay or shutdown iTunes in Europe.

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