In a recent publication Steve Jobs, the big boss at Apple, has given arguments to stop DRM (‘Digital Rights Management’) for the download of music. He is convinced this will lead to a significant rise of the online sale of music. The music industry badly needs the additional revenue from music downloads to compensate the decrease in revenue from CD sales. Will it be possible for them to keep their grip on music distribution still exclusive, or will they soon have to let go of all DRM security?
DRM, central in the strategy of the record companies
The large record companies have been struggling for years with the problem how to battle against the illegal copying and downloading of music. The past few years, the rise of the Internet and popular tools to copy CDs have caused the downfall of income for record companies. In Belgium IFPI, the association of record companies, reports a decrease between 2000 and 2005 of no less than 30%.
The development of DRM techniques initially seemed a blessing for the record companies. Through DRM music files are protected and can only be listened at by the person for whom the file was intended (and who necessarily also paid for it). Thanks to DRM, a legal music download business has developed. In Belgium this brought 4 million euro of income in 2006. This income is still only 5% of all music revenue.
Executing DRM: complex and no interoperability
To prevent illegal copying, DRM systems have to make sure that only authorized appliances have the right to play the protected music. Therefore DRM systems use secret keys and complex cryptographic algorithms. However, no DRM system is 100% fully secure. Many hackers find a challenge in searching holes in such systems and then report them on the net.
Because of the intrinsic complexity and the need for a secret setup of the DRM systems, it is not easy to develop an ‘open standard’. The result is that every hardware producer has setup and maintains his own DRM system, and that these systems are not compatible with each other.
The world without DRM, a dream?
‘Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players.’ dreams Steve Jobs out loud in his open letter.
For the consumer, such a system only has advantages. To make this acceptable for the music industry, the business model will have to be further clarified.
Two possible scenarios appear. In the first, the price of a download purchase is lowered significantly, which takes away the incentive for illegal copying. In this scenario, downloading stays the most important distribution model. In a second scenario, the consumption of online or mobile music is only offered in streaming. The consumer has permanent access to the entire catalogue and pays a monthly fee to his ISP or mobile operator. Research has proven that consumers are willing to pay up to 6 EUR per month for such a service.
Both scenarios have significant pros and cons. No matter what, the music industry is confronted with the devastating choice to let go of the DRM model, that generates only limited revenues, and to try alternative ways.