EVENT TRANSCRIPT ARCHIVE. UK MUSIC INDUSTRY BUSINESS.

DRM: Copy Protection vs. Consumer Frustration

How far should DRM go in terms of restricting usage and monitoring consumers before it risks forsaking the trust and respect between producers and consumers of music?

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DRM: Copy Protection vs. Consumer Frustration

Please note this is a summary which attempts to report the general flavour of the event. It is not a direct transcript of what was said and does not necessarily quote speakers directly.

1. KEYNOTE (SUMMARY) – Richard Gooch

There are three main ingredients to providing a successful digital music service. You must have:

1. Goods
2. Promotion
3. Paying customers

In the UK we certainly have the goods – The BPI recorded 6,100 singles and 30,000 albums released in 2005 with 250 of those albums selling over 100,000 copies.

In terms of promotion the internet has proved to be a fantastic tool even if we do not yet have all the answers as to how best to use it.

And, as the 3rd biggest music market worldwide with over £5 Billion spent on music annually, we have no shortage of paying customers.

Apple’s iTunes, Napster, OD2 and others have all lured these paying customers online by offering quality product via systems that support the cycle of payment for and reinvestment in new music. Selling music in unprotected MP3 format may work for certain artists and labels but is in no way a successful recipe to follow for the entire industry. Some organisations, such as the Electronic Frontier Foundation, criticise the iTunes model from the sidelines but what alternative do they suggest to ensure artists get paid? An “online tips jar” – tantamount to online begging.

The iTunes model has been so successful because it offers a service tailored to what people want in return for payment, just as retailers have always done in the “bricks and mortar” retail sphere. Apple have simply digitised that model and added greater flexibility.

Other systems have taken a different approach – for example Napster To Go offers unlimited access to over 1 million tracks in exchange for a subscription fee while Rhapsody is based around streaming music and there are over 200 other alternatives in Europe alone spanning mobile, video and various interactive uses.

The reason we now need so many different options is because digital broke the mould for how people can consume music. Now there are varying demographics who all want and expect different things from their online music service. The only way we have been able to meet this demand is via the use of DRM.

DRM has given us the tools to shape and reconfigure digital music services and is a system working away in the background for the benefit of the consumer. DRM “just works” – and that is the way it should be, enabling new and compelling ways of delivering music. In order to work, however, DRM must be transparent. It mustn’t get in the way of the consumer’s enjoyment of the music and it mustn’t do anything else other than facilitate and protect the service.

Consumers are already accustomed to DRM: it has been around in computer games for over two decades, was present in the Macrovision systems on VHS, exists in DVD encoding and has already been widely accepted in online music. This is because it reinforces the bargain being struck between consumer and online music service provider, facilitating, for example, various payment systems, streaming, subscription models and conventional track-by-track downloads.

DRM is not a restrictive technology. It is inherently neutral and if it fails to give consumers added value then they will reject that particular DRM system and it will fail. iTunes DRM, for example, allows transfer of tracks to up to five PCs and allows seven burns per playlist. In effect this means that you can burn your music in a variety of configurations to an unlimited number of CDs – consumers accept this and have made iTunes wildly successful.

DRM is both an enabler – facilitating different models of selling music – and a protector – ensuring creators can sell their music on their own terms and receive adequate payment for its use.

There have been many antagonistic voices recently keen to express myths and lurid charges aimed at DRM but to give in to these views is to misunderstand that any misuses of DRM are not inherent in the technology itself.

Record companies do not use DRM to surreptitiously gain information on their customers. Any sensitive information is far more likely to be contained within the ecommerce systems on music websites which is completely separate from the DRM included on the music tracks.

DRM does not block “fair use”. It does and should block illegal uploading onto P2P networks which rob the artists of key revenue. But at the same time DRM enables flexible uses far beyond the narrow spectrum allowed by a strict adherence to copyright law – for example the burning of multiple CDRs based on legally purchased music.

It is also clear that DRM should enable interoperability between different software and different music players. This is not the case today, and resolving this issue is one of the key priorities for the mainstream record industry.

If any rulings occur on DRM as a result of the upcoming All-Party Parliamentary Internet Group (APIG), they must leave enough leeway to let it adapt in order to facilitate the ongoing evolution of online music services. The digital music marketplace is thriving at the moment, DRM is working, and the marketplace is therefore the right place for DRM issues to sort themselves out.

DRM has already led to the revitalisation of the singles chart, especially for independent acts, and should be allowed to continue to serve in the background – quietly and unseen – as an enabler for the online music market.

2 . PANEL RESPONSE

Simon Wheeler: The IFPI supposedly represent the entire record industry but their views on DRM bear very little similarity to those held by Beggars and the majority of the UK independent record sector. Beggars have recently enjoyed two double platinum and one single platinum selling album in the UK, all while licensing their entire catalogue worldwide with no added DRM.

The major labels have been arguing for years about the need to “lock-down” content with DRM – to stop it being illegally uploaded onto P2P networks. But why should the indies follow their lead when we have been misled before?

When Napster first came along Shawn Fanning went to record labels to try to license their music legally. The indies licensed their repertoire, but the majors refused and took the service to court instead. Had they found a way to license Napster then this would have removed the need for further P2P networks to develop. Instead they forced Napster users underground to devise new ways to illegally share music.

Using DRM to stop P2P is doomed to failure because the P2P users are the very people with the technological skills to crack the code first. Instead DRM punishes the general public by imposing lower sound quality and restrictions on use.

Are we even in the same business as the majors anymore? – the majority of the independent sector is of the belief that if you treat the customers with respect then they will treat the labels and artists with respect in return – and legally purchase music.

There remains a far wider discussion to be had about how to monetise the online sharing of music. DRM is part of ongoing attempts to “bolt on” new rules to existing copyright law in order to accommodate the new digital markets for music. Rather than bolt-on fixes, we need laws tailored for digital that protect copyrights while allowing artists, labels and consumers to be fairly treated and recompensed.

Gregor Pyror: DRM undoubtedly has positive aspects. It allows labels to decide how they want consumers to be able to access their music and opens the door for new business models such as Napster To Go and Rhapsody. There is still some way to go, however, in areas such as fair pricing. The US are currently investigating the pricing of online music and there is no reason why DRM should not facilitate cheaper music depending on the limitations it imposes upon use.

From a legal perspective copyright law provides lots of protection to those who develop and implement DRM but doesn’t do nearly as much to protect the rights of consumers. If DRM locks the consumer out from using music as they expected to then the consumer has little recourse except writing a stern letter to the Home Secretary.

Because of this potential imbalance it is very important that DRM systems promote consumer understanding and clear terms of use are provided.

Another problem is that there is a mini DRM war going on between different file formats and between the different commercial aims of different music services. These problems will likely work themselves out without any intervention from APIG or others, however, as consumers will always vote with their feet and favour the service which gives them what they want – perhaps even a totally DRM-free solution

Ray Farrell: Labels want their music in the hands of as many consumers as possible and mp3 is the most flexible format – which is why emusic provides all its files in mp3.

Adding DRM to downloads is only one of three responses to increased piracy, the others being improved education (although this seems to have largely consisted of suing people and publicising the cases) and invasive technology which finds out what is on consumers’ computers and reports any illegal activity.

While some DRM is essential it should never take away functionality and it must be compatible with the dominant music players in the market. If not then imposing DRM is comparable to a shop selling a CD which only plays on their own-brand machine. Consumers will always walk away from any service which won’t let them use their music freely – that is why they have become frustrated with device-to-device incompatibility and largely rejected non-mp3 file formats.

Ted Shapiro: On average only three out of every ten films released will make its money back based on box office receipts and it is therefore very important that the film industry makes the most out of the later windows to generate revenue. The use of DRM is central to this process and always has been – that is why the first digital format – DVD – was released with copy protection.

Now, for the first time, DVD sales may be levelling out so the film industry is looking for the next way to generate revenue, most likely through internet-supplied video-on-demand. DRM is very important to this initiative and the industry is already experimenting (e.g. Disney are developing self-destructing files) in the full expectation that the public will reject some of the proposed solutions and will vote with their feet for the DRM-enabled option which is most acceptable to their needs.

Keith Harris then read out the following statement from Jill Johnstone, Director Of Policy, National Consumer Council, who was unable to attend

“NCC statement on Digital Rights Management and the music industry”

The National Consumer Council’s mission is to help everyone get a better deal by making the consumer voice heard. Our approach to intellectual property is to achieve balance. We recognise the value of intellectual property rights (IPRs) as a reward to innovators and creators, but we are concerned about the costs placed on consumers of enforcing these rights, and the use of the enforcement of IPRs to curtail legitimate consumer freedoms.

The current copyright regime, which was designed for the analogue world, has proved unfit for the challenges of the digital revolution. Digital technology has radically changed distribution models in many sectors, and led to major tensions between IP rights holders, particularly music companies, and consumers. New approaches are needed.

Appropriate use of Digital Rights Management (DRM) technologies may have a role to play (although their ability to halt organised criminal counterfeiting is minimal). However, the way DRM technology is being used is causing a number of serious problems for consumers. These include: unreasonable constraints on the use of digital products; adverse impacts on the use and security of their equipment; and infringement of consumer rights under consumer protection and data protection law.

The development of DRM so far suggests that leaving it to industry self-regulation will continue to compromise the legitimate rights of consumers. This means that it is insufficient for the regulation of DRM technologies merely to be concerned with their protection from circumvention. A more balanced legislative framework is needed which provides explicit recognition of consumer rights and ensures that anti-circumvention protection is only provided to DRM systems which meet the required standards.

Examples of consumer problems

• The use of digital products

Copy protected CDs set arbitrary limits on the number of copies consumers can make and their ability to make compilations of material that they have purchased for their own use. Also some CDs will not play on consumer’s players, not only computer CD drives but also, in some cases, stand-alone hi-fi equipment, including car CD players
with no copy function.

DRMs on digital music files sold online can prevent or limit consumers ability to transfer the music to portable listening devices or onto CDs to play on other players they own. The wide variety of DRMs and proprietary formats leads to compatibility problems with players so that consumers who want to change their music service providers or players often have to repurchase music files.

Regional coding on DVDs and players means that consumers who buy DVDs while travelling in another region cannot play them on their DVD players when they return home; nor can they play their home DVD collection on a player bought in another region. This is less of a problem for consumers in Europe as they are able to buy code
free multi-region DVD players. However, a new layer of coding on Region 1 (North America) DVDs prevents selected Region 1 DVDs from playing on multi-region players.

Laptops are meant to be portable travel companions, yet several operating systems and DVD players only allow for a restrictive number of DVD-region switches before the laptop becomes locked down to one region.

• The use of their equipment

Some DRM tools actively intervene in the running of consumers computers, either to launch a proprietary player or other device, or to search for other software. This may have a detrimental effect on consumers’ ability to use their hardware for uses that are unconnected to the product with the DRM. Where, for instance, computers are not running the most up-to-date version of various software packages, the DRM software may require these upgrades to be made before allowing use. This forces consumers to spend extra time, effort and money to use the product. It also forces consumers into choices over software that are far from free, or informed. Indeed consumers may be forced to accept unfavourable contract/licensing terms through the up-date if they want to continue to use the software.

Where DRM uses an internet connection to report back to sellers, not only does this have an impact on consumer privacy, it may also have implications for the security of the computer involved, as in Sony/BMG’s DRM on a Van Zant CD.

• Consumer rights

Under European and UK consumer protection law, consumers should expect clear statements about the operation of, and effects of, using a product. However, these are seldom available on products using DRM. In 2002, the International Federation of the Phonographic Industry (IFPI) developed voluntary guidelines for its members on the
labelling of CDs containing DRMs, but the IFPI guidelines do not appear to have had much influence on industry practice.

When DRM renders aspects of a computer’s operation impossible, such as copying, this degradation of another device by the software is a violation of the right of consumers to expect goods to function as designed and described.

Some of the contract terms used in licences do not appear to be fair. For example, the Sony/BMG End User Licence Agreement for the XCP software allows Sony/BMG to install and use ‘backdoors’ in the software, but also disclaims any liability for harm or damage to consumers computers. “Renewable” DRM systems can change or reduce consumer’s useage rights after purchase. For example, iTunes has changed the amount of copies of downloaded material their DRM allows.

DRM shifts the burden of proof to consumers, regarding claims that DRMs are preventing legitimate activity. Given that consumers are the weaker party in these relations, and frequently are not clearly appraised of the limitations on use that the licence (and its associated DRM) place on them, DRM disadvantages the purchaser of products in which it is embedded.

• Privacy rights

The Article 29 Data Protection Working Party has expressed concern that the legal requirements for data protection are not being adhered to. In particular, it is concerned about: the unique identifying of each transaction for the purpose of possible future investigations into copyright infringement where no evidence or suspicion is currently expressed; the collection of information not for its stated purpose of service delivery but for some unspecified future use; and that information is being stored long after its use for a specific transaction has been completed.

2 . PANEL RESPONSE

(RG) The statement draws too negative a picture – just look at the success of iTunes: consumers are buying iPods and flocking to iTunes in their millions.

Yes, the DRM on downloads often necessitates the installation of new software – but that is how computers work. In order to enjoy the benefits of these new models of enjoying music you often need versatile new music players but the upgrades are almost instant and to complain about advancing technology is a game of smoke and mirrors, obscuring the inherent benefits this technology brings.

(KH) Jill’s issue is one of transparency – consumers want to know precisely what it is they are installing.

It is also true that very often the biggest companies and service providers are not necessarily the best but are those with the marketing clout to overshadow the rest and dictate what an acceptable service should be. In these cases perhaps, rather than voting with their feet, consumers lack the combined might to resist the biggest company who were the first to exploit the market and have subsequently become all powerful.

(SW) Apple and other large technology/media companies are extremely happy when major record labels start fretting about piracy and request DRM to tie down their content – because it gives Apple etc. a free reign to also tie it to their own hardware. These are the very companies who are screwing rights holders down for the very cheapest use of their rights. It’s a strange business strategy that gives Microsoft and Apple even more power.

(TS) Several film companies have entered discussions with the likes of Microsoft and Intel about developing DRM systems but realised that if these companies own your DRM system then you create a gatekeeper dictating access to your content.

It is in our own interests to develop interoperability alongside security. It doesn’t matter how the consumer gets the content – be it via satellite, digital transmission, via a petrol pump – as long as they are respecting usage rules and paying an appropriate fee.

3. QUESTIONS FORM THE FLOOR

The Possibility Of A Compulsory/Statutory Licence For Online Music:
(TS) P2P as it stands will not be compulsory licensed because the record and film companies simply do not want those previously illegal and unregulated services in charge of their copyright. Furthermore the costs of worldwide levies and tracing procedures would be immense and leave a pittance for the artists and companies involved.

A compulsory licence only makes sense when talking about an essential facility such as electricity, water, or the need to provide safe harbour to passing ships. To treat music in the same way would turn it into a mere commodity.

Compulsory licences, such as those in broadcasting, are also usually secondary concerns arising from problems with delivery and accurate monitoring. But there are so many options when delivering music over the net. It is too soon to abandon file-by-file monitoring and monetising in favour of compulsory licensing.

(RG) The online music delivery systems and DRM we have at present are working and proving themselves increasingly popular in the marketplace. There is no evidence that a compulsory licence fee for P2P would improve the situation or provide sufficient revenue and marketing opportunities to replace current models.

(SW) Rather than a compulsory licence perhaps a statutory licence should be considered which content providers can choose to opt in or out of. However, the red tape surrounding such an endeavour would be a nightmare. Imagine trying to get all the different TV, film and music companies to agree. And what about the massive cut owed to the porn industry – after all their content is constantly being shared over P2P.

While DRM on standard downloads is unnecessary, licensed P2P would involve massive distribution concerns and would require some kind of DRM to track what is being shared and distributed. At the moment, however, DRM is too extreme a restriction and amounts to using a hammer to crack a walnut.

Besides, at the moment most indie labels consider P2P as generating great online promotion and fan-to-fan start-up buzz around new artists. It is only once a record crosses over and really starts selling that it becomes worth our while to protect the copyright and clamp down on illegal filesharing.

Should The ISPs Pay Some Of The Cost Of Illegal Filesharing?
(SW) For years the Internet Service Providers have been selling their portals based on fast downloading capabilities – even before there were legal outlets to download music. They should undoubtedly take some of the responsibility for increasing filesharing and help us to monetise P2P.

(TS) Difficulties arise because, in the present legal regime, the ISPs are not guilty of actually hosting P2P. They are simply seen as access providers who can then claim ignorance of what their customers are actually doing. Meanwhile individual ISP companies such as Deutsche Telecom enjoy a greater annual turnover than the entire record industry. There is much more that needs to be done, either through discussion or legal means, to get the ISPs to cooperate in legalising/stemming P2P.

(RG) The record industry has not given up on reaching an agreement with the ISPs and is still keen to negotiate a joint agreement to monitor and legalise filesharing.

(SW) Playlouder are an ISP who break the mould, however, seeking licences to reimburse labels for any content which is shared over their network – and the major labels won’t play ball. The music industry is crying out for an answer to P2P. Playlouder supply one, and the major labels won’t license it – Why?

In Light Of The Mobile Networks Accepting A Universal DRM System (OMA2), What Chance Of The Record Industry Finding A Similar Solution?
(RG) Finding a universal DRM system which offers full interoperability should be our highest priority – it is a timebomb waiting to go off. The problem, however, is that there are three vertical silos – the mobile sector, the computer sector, and the consumer electronics sector – each with ingrained, self-serving reasons never to agree upon one system for their customers to easily share their files across the other two sectors. It is inconceivable that Apple and Vodafone, for example, could agree on one DRM system. This is where the Coral Consortium approach may fit in, providing an intermediary service which translates between the two systems.

(SW) While we are experiencing overly restrictive DRM right now the future does look brighter, particularly due to interoperability initiatives such as The Coral Consortium’s. They are still in the early stages, however, and have a long way to go yet. The danger is that by the time an interoperable DRM system arrives the industry may have shrunk beyond the point of recovery due to restrictive DRM alienating so many customers.

Could Watermarking Be A Viable Solution – Tagging Tracks Based On The Recipient?
(RG) The IFPI are currently looking into watermarking technologies as one option for the future.

(SW) Watermarking works extremely well in the tracing and monitoring of material which is distributed pre-release and would be far preferable to any DRM which seeks to “lock-down” content.

(TS) All the major studios use watermarking to trace copies of films which are sent out early for review and promotional purposes. Unfortunately it only helps to prove piracy after the fact. It enables us to find out who made illegal copies but by that point the pirated copies have already been created. It cannot help at the source of piracy unless equipment is developed to respond to the watermark and restrict illegal uses accordingly. This would require the cooperation of major computer manufacturers such as Intel, however, which could prove a tall order.


CMU Summary:

“I’m not sure the major and independent record labels are really in the same business anymore. We both put out recorded music that people consume, but sometimes it seems that that’s where the similarities end”.

And in one quote, Simon Wheeler from the Beggars Group provided the one conclusion to be drawn from last night’s MusicTank Think Tank debate on digital rights management – when it comes to DRM and copy protection, the music industry is a long way from consensus.

Richard Gooch, Deputy Director Of Technology of the International Federation Of The Phonographic Industry was charged with the task of defending the major record companies’ position in this space, in light of a statement from the National Consumer Council that accused them of “using the enforcement of intellectual property rights to curtail legitimate consumer freedoms”.

“There are three ingredients to make digital music work,” Gooch began, “content, promotion and paying customers. We have the former, especially here in the UK where a lot of hard work and risk taken by artists and labels has created a fantastic and large catalogue of music. The internet itself provides incredible new promotional tools – albeit many as yet untested. The tricky bit, is how to connect with the paying customers.”

“If an artist or a label wants to give away or sell MP3s and they believe it is the right thing to do, then that’s great. But in the mainstream that doesn’t work – you need a different model. It’s tricky, and it’s taken time to find those models. But in iTunes and Napster and the other 200 legitimate download platforms you have models which are working. iTunes have sold some 850 million tracks, 600 million in the last year. People criticise digital rights management, and they say consumers dislike DRM, yet iTunes is a working and hugely popular music service that exists on the back of DRM.”

“There is good DRM and bad DRM,” Gooch continued, “to work, the technology has to be in the background, so it doesn’t interfere, though at the same time we have to be completely transparent about what restrictions are in place. But services like iTunes, and Napster, are achieving just that”.

Simon Wheeler, though, is not convinced. While not rejecting the concept of DRM, he, and others in the independent sector, reckon that the major labels are wrongly obsessed with “locking down” content, and “controlling” how consumers connect with their music – an obsession that is both unachievable and unnecessary.

Wheeler, “To say that the selling of unprotected MP3s cannot work in the mainstream is garbage. I know this because we’re currently doing it. Our whole catalogue is available to buy as MP3. Has it hit our physical sales? No, if anything they are up. Of course it means some people can get our music for free off friends or P2P networks. But people will do that anyway – all DRMs can be hacked – the industry needs to stop worrying about the people who are chasing free music, and concentrate on the audience who are willing to pay, and want to pay for good content. But you aren’t going to reach that audience while you’re “locking things down”.

Of course the major labels would probably argue, possibly rightly, that the independent sector enjoys a much more loyal, albeit niche consumer base. Genuine music fans feel a real affinity with labels like those in the Beggars Group, and will continue to buy music from them, even when they could access it for free if they so wished. The average Britney or Westlife fan, the custom of which the majors rely on, may not be so loyal. Why shouldn’t the majors use technology to protect their interests, especially when companies like Napster and Apple have created technologies that do just that but at the same time are seemingly popular with music fans?

“If people don’t like a DRM, they’ll vote with their feet,” stressed Ted Shapiro of the Motion Picture Association, representing an industry facing its own DRM dilemmas. Backing up sentiments expressed by Gooch, he continued: “The major record companies, like the major film studios, have no interest in alienating their customers. Yes they’ll make stupid decision along the way. SonyBMG, deliberately or not, made a stupid decision when they put the ‘rootkit’ DRM on their CDs. But they’ve learned their lesson, consumers have spoken, and they’ll learn from that and move on. It’s the same with other DRM”.

That said, for me, consumers aren’t so much the issue. While the National Consumer Council and other lobbying groups may, rightly or wrongly, protest about consumers’ ethical rights in this domain, the major record companies probably won’t lose too much custom, even when, as they sometimes do, they opt for the more foolish kinds of DRM or copy-protection. Consumers, while sometimes critical of the entertainment industry, have been very forgiving over the years when content owners have used technical developments to re-sell everyone the same stuff (many people have, after all, built at their own expense, four identical record collections – one on vinyl, one on cassette, one on CD, one on MP3). For me the issue for the music business is the motives of the technology firms, an issue also raised at the Think Tank.

“When the big entertainment companies get into bed with big technology companies, it can be dangerous,” Shapiro admitted. “It is tempting for big content companies to look to Microsoft or others for the complete solution. But in doing so they may turn those companies into gatekeepers, which is possibly risky. After all, Apple don’t really care about music or film, they care about selling computers”.

While Shapiro didn’t develop that observation, concerns about the control the IT, and possibly telecommunications, sector may soon hold over the music industry were clearly held by many at the Think Tank, especially in the independent sector. Which for me is the strongest argument against DRM. If the major labels were to find a way of making a Beggars style model work for them tomorrow, so that all music could be sold in the platform-independent MP3 format, then issues around inter-operability and the controlling influences of technology firms would be drastically cut overnight. And the majors could divert the huge sums of money being spent on DRM solutions, and the legal lobbying and litigation required to protect those solutions, into making that Beggars style business model work.

Though, given the differences of opinion on show last night, I don’t see that happening any time soon.

Courtesy of Chris Cooke, CMU Daily, 20 July 2005