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Jobs' DRM Plea - a Win-Win for Apple

Jobs' DRM Plea - a Win-Win for Apple

Consumers would clearly benefit from an opening up of the industry. "Most consumers are pretty happy with CDs and CD players," Mike McGuire, vice president of research for media at Gartner Group said. "There needs to be more proof that online music is a better option. For a lot of people, the bottom line is that online music hasn't proven itself."

By Katherine Noyes MacNewsWorld ECT News Network
02/14/07 4:00 AM PT

When Apple CEO Steve Jobs' open letter entitled "Thoughts on Music" was posted on Apple's Web site last week, it stirred up a new round of controversy over digital rights management (DRM), the technologies used to prevent piracy of online digital music.

Jobs' letter decried DRM technologies as ineffective against piracy, and called upon the major recording labels to stop requiring their use to protect music tracks sold online via Apple's iTunes store and other outlets. Instead, Jobs suggested that DRM technologies should be abandoned, and that the music industry should move to open standards. Jobs also defended Apple's decision not to license FairPlay, its own, proprietary DRM system, arguing that doing so would make it too vulnerable to hackers.

A New Impasse

The Recording Industry Association of America (RIAA), in turn, responded by arguing that the best solution would, in fact, be for Apple to license FairPlay so that music purchased through its iTunes store could be played on devices other than just Apple's own iPod. Licensing FairPlay would also allow music purchased from other outlets, which currently use their own versions of DRM, to be played on iPods -- something that's not currently possible.

Interoperability was the rallying cry of the week, whichever side happened to be speaking.

These arguments are nothing new -- astute observers may remember Yahoo Music Chief Dave Goldberg making much the same argument last year -- but they do seem to have created a new impasse. The result has been a great deal of speculation about each side's motives and intentions. Apple's strategy, in particular, has become the subject of much discussion.

"There are a number of things Apple's trying to do with this letter," Ricky Spero, anchor for the MacObserver's Apple Weekly Report podcast, told MacNewsWorld. "One of them is to lay the groundwork -- the public argument -- for a legal argument they're going to have to make in Europe."

Trouble Overseas

Norway, Sweden, Denmark, Germany, France and the Netherlands have all cried out against Apple's proprietary DRM, and the Norwegian Consumer Ombudsman ruled in January that the terms and conditions at the iTunes Store violate Norway's laws. So, unless Apple changes the way the iTunes store operates, it faces legal action. It is scheduled to file its brief in the Norwegian courts in the next few weeks.

"The response from Norway has been, 'it's great Apple is supporting the idea of no DRM, but if the recording companies don't go for it, it's still up to Apple to make the consumer experience what it should be,'" Spero explained.

In addition to protecting the Apple brand and showing consumers it's on their side on the DRM question -- "Apple's first priority has always been to protect its brand and image," Spero said. Jobs' letter also "presents a user-friendly, public version of the argument they'll be making," he added.

Sticking to Their Guns

The direction that suit takes in Norway may foreshadow what's to come elsewhere in the world when it comes to DRM, but for now, the recording labels are apparently sticking to their position -- despite the fact that CDs, which still account for the bulk of their revenues, are completely free of copyright protection technology.

"The simple reality is that if they could have copy-protected CDs, they would have done it long ago," Spero declared. "But there is no easy way to do it."

Indeed, too many players wouldn't work when companies experimented with copy-protecting CDs, Phil Leigh, senior analyst at Inside Digital Media, told MacNewsWorld.

"I think the recording labels originally felt they could have a very controlled way to do subscriptions, so that once you stop paying for it, you lose access," Mike McGuire, vice president of research for media at Gartner Group, told MacNewsWorld. "That's very different from the kinds of physical subscriptions to things like magazines that most of us are used to, where once we have the product, it's ours. They were hoping to get you to lease the music, not own it."

Though such subscription-based models do exist today -- McGuire cited e-Music, which nevertheless does not use DRM and so can't carry tunes from the major recording labels -- the model has not proven to be a widely popular one.

Breaking Ranks?

EMI is reported to be in talks with online distributors about shifting to the open MP3 standard, but it remains to be seen whether that will really happen. "That seems extremely unlikely," Spero said. "The recording companies have bet heavily on DRM, and are protecting their CD business. They would exhaust every option before they allowed that to happen."

Consumers would clearly benefit from an opening up of the industry. "Most consumers are pretty happy with CDs and CD players," McGuire noted. "There needs to be more proof that online music is a better option. For a lot of people, the bottom line is that online music hasn't proven itself."

If DRM does remain, will persistent interoperability issues ultimately cause consumers to stop buying music online? "The iTunes store is now the fourth-largest largest music distributor -- it surpassed Amazon at the turn of year," Spero stated. "People have found a use for buying music through these services. There's no indication that iTunes will fail to be successful."

Apple on Top

Therein lies one of the most important realizations from Jobs' letter, Spero added: Apple will make money no matter what -- with DRM or without it. "As long as we have DRM, Apple can lock people into iPods," he claimed. "If there are no DRMs, more people will buy music."

In fact, Apple makes more money from its iPods than it does from iTunes, Leigh added. So, if it came to a showdown and the big music labels decided not to sell their music to iTunes anymore, "the labels would get hurt more than Apple would," he said.

In other words, Apple will win either way, and so Jobs made his statements to protect the company's brand by siding with consumers as well as to lay out a public version of its upcoming legal defense. "Having done that, the record labels and analysts can say anything they want to, but Apple won't say anything else about it," Spero said. "That's classic Apple: Present the argument and stop talking."


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