DRM is a bad business-move for MSFT:
But then Sony acquired a relatively tiny entertainment company and it started to massively screw up. When MP3 rolled around and Sony’s walkman customers were clamoring for a solid-state MP3 player, Sony let its music business-unit run its show: instead of making a high-capacity MP3 walkman, Sony shipped its Music Clips, low-capacity devices that played brain-damaged DRM formats like Real and OpenAG. They spent good money engineering “features” into these devices that kept their customers from freely moving their music back and forth between their devices. Customers stayed away in droves.
Today, Sony is dead in the water when it comes to walkmen. The market leaders are poky Singaporean outfits like Creative Labs — the kind of company that Sony used to crush like a bug, back before it got borged by its entertainment unit — and PC companies like Apple.That’s because Sony shipped a product that there was no market demand for. No Sony customer woke up one morning and said, “Damn, I wish Sony would devote some expensive engineering effort in order that I may do less with my music.” Presented with an alternative, Sony’s customers enthusiastically jumped ship.
The same thing happened to a lot of people I know who used to rip their CDs to WMA. You guys sold them software that produced smaller, better-sounding rips that the MP3 rippers, but you also fixed it so that the songs you ripped were device-locked to their PCs. What that meant is that when they backed up their music to another hard-drive and reinstalled their OS (something that the spyware and malware wars has made more common than ever), they discovered that after they restored their music that they could no longer play it. The player saw the new OS as a different machine, and locked them out of their own music.
There is no market demand for this “feature.” None of your customers want you to make expensive modifications to your products that make backing up and restoring even harder. And there is no moment when your customers will be less forgiving than the moment that they are recovering from catastrophic technology failures.
Here is another illustration: private roads. Would you, the patron of a private road, pay policemen to pull you over for speeding? Probably not.
And this is not a contractual matter. There is simply not a customer-driven movement to restrict access to various properties customers already own. You do not see massive student protests marching down expressways chanting: “Limit what we can do with our music, take away our ability to swap files, free us from functionality!”
No demographic group is standing in line at Best Buy demanding to be sold products which limit their capacity to replicate movies or music playlists or data files.
Do you find yourself shouting at Sony’s headquarters in the middle of the night, clamoring for them to produce obsolete, inferior and feature-less products for your consumption?
If the customer is always right, maybe companies pushing DRM-based solutions should be on the look out for someone developing a product that does what a customer wants it to, because if they do not, the market will.
Via Marginal Revolution.
{ 18 comments }
Tim, this was a very good article and comments by you. The one quibble I have is that there would be policemen on private roads, and there would be speed limits. It’s sort of like when you enter a movie-theatre; there are huge masses of people who want to enter movie theatres, even though they know that security will kick them out if they are disruptive; and they’re paying for the security that will kick them out if they’re disruptive. What they’re really paying for, ex-ante, in this kinds of situations, is for security to kick out other people who are causing a disturbance, or for the private police to pull over other drivers who are driving unsafely, thus to create a safer road.
However, the main point of your article still stands.
Thanks David. Regarding the private roads point, I realized that it probably would open up another can of worms and it did, a discussion for a different time.
Your argument is fallacious because the motivation for CRM has nothing to do with meeting consumer demand for it. Rather, it is a condition of record companies to release their media in digital form. Consumers do demand CRM indirectly, since they would rather have CRM-protected digital music than no digital music. If you are looking for someone to blame, blame the software pirates who make CRM a necessity in the first place. Of course, one could argue that a record company might be more profitable if it turns a blind eye to piracy, but the continued high profits of the music industry (including sales of CRM-protected media) indicate otherwise.
Also, CRM is an optional “feature” of WMA that few people enable by default. Microsoft doesn’t dare create a DRM-only ripper as long it faces the prospect of DRM-free competitors.
Oh goodness, another person who believes that ideas should be regulated.
I’m just glad people like Mr. Veksler didn’t invent the alphabet. I might have to ask his permission to speak.
In fact the record companies have been “releasing their media in digital form”, as Veksler puts it, since roughly 1985, and, aside from some recent experiments, they continue to sell practically all their product in un-DRM’d digital form.
Whatever reasons manufacturers have for selling deliberately-crippled players, the availability of content is not one of them.
Before computers and MP3, the DRM was the difficulty in doing digital copies of audio media (Remembering some of the work I did on the old NEC 3x CDs had a hidden set of commands which you could access with the right SCSI commands under Linux to rip the digital audio as a digital stream). DVDs only fell when someone broke CSS (and then they found it was so cryptographically weak (16 bit effective key) that an old PC could crack it in a few seconds). This was DRM, but was a thin facade painted as a brick wall.
Since technology tends to fail – and the AAC has been hacked. Twice. (“hymn-project.org”) And will be again. Of course the mercenaries paid for (via campaign contributions to politicians) by the RIAA and MPAA will throw anyone in jail who tries this – now the patriot act is being used, so I guess they are terrorists.
I’ve suggested elsewhere that the G30 (the upper part of the 3rd world) should basically ignore our IP protection demands – host Napster and Kazaa and whatever else including patented medicines and mechanisms, until we end our tariffs and subsidies and allow true free trade – the one pager treaty.
Orrin Hatch’s latest is to make it a crime to make something that can do p2p file transfer because it encourages children to commit crimes, though I’ve heard the music being copied, and he would do better to try to ban the media itself which is telling children to commit violent rape and to murder policemen. But rape victims and police don’t have enough money to pay for mercenarys.
And wonderful Wal-Mart, patron corporate saint of one sect of libertarians is trying an iTunes like store with $0.88 WMA DRM locked tunes. I don’t know how well it is doing, but I don’t think it is beating Apple.
iTunes has a particular advantage in that the DRM is very liberal – you can authorize a housefull of other computers and burn playlists to CDs. Fairly unobtrusive and transparent.
You can’t do that with the WMA stuff. Even getting it on your player is sometimes like getting through airport security.
We’ll see if Wal-Mart actually serves the consumer in this case. WMA does not stand for Wal-Mart-Awful format.
Mr. Veksler, I appreciate the reply however I believe you proved my point by suggesting that “the motivation for CRM has nothing to do with meeting consumer demand for it.”
Bearing studies suggesting otherwise, proponents of DRM may want to find ways that the technology-limiting protocols benefit customers — currently DRM/CRM takes away what the consumer can already do. In fact, DRM simply offers no additional benefit to a customer.
It does not make your music any sexier. It does not protect your music against terrorism. It does not give your music better gas mileage. It is simply a producer driven standard to protect the producers vested interests (which is understandable).
Economically speaking, DRM is the bastard child of John Maynard Keynes who reformulated Say’s law to state that “supply creates its own demand.” This simply means that once a producer has developed a product, the consumer will begin to demand it.
And in the case of DRM, this is clearly not the case (again feel free to cite studies suggesting otherwise).
David Veksler, I disagree with your statement that consumers demand CRM indirectly; they are simply willing to put up with it.
CRM is a good thing for the record labels, because it satisfies their need for power and control, and gives them the good feeling that they will reap maximum profit through control and distribution.
For the consumer, CRM is either a neutral thing they accept in order to listen to what they crave, or it is a bad thing that some people will put up with in order to get what they cannot through some other means.
I would say some people are simply ignorant of CRM and accept what is provided to them. This is the ideal consumer, the kind the record companies would love for all of us to be.
Perhaps for those who have philosophical or ethical reasons against CRM accept it as a necessary inconvenience in order to consume what they want.
Listeners demand easy to obtain music at little cost, not CRM, but as long as people put up with it, the record companies will continue to use CRM.
Your argument is fallacious because the motivation for CRM has nothing to do with meeting consumer demand for it.
What argument are you claiming is fallacious? That producing low-capacity DRM-enabled digital devices prevented Sony from capitalizing on the market now dominated by Creative Labs and Apple? We all know that Sony had the capability to make it’s own version of the iPod; maybe they would have lost out to Creative and Apple anyway, but I don’t see how you can coherently argue that Sony wasn’t producing a product that essentially nobody wanted.
The internet makes exchange between the artist and
the consumer possible, at very low overheads. If the
artist gets only 10c/song out of a $20 CD, and if he can
sell it at $1 on the internet and still get 10c, what is
the need for the recording company and the retail store
and all in between?
These middlemen, and their cuts, the CD manufacturing,
cutting and packaging costs are all eliminated. And on
top of it, the consumer could get to choose which
songs to record.
Todays business model and the players – recording cos and
retailers – are obsoleted. Their role is being replaced
by Internet providers, hosters, payment processers and
the like.
DRM legislation is really not against piracy but against
the new business model. At $1 a song, the number of people
who is going to pirate, and the revenue lost will not
justify the cost of DRM. iTunes has already proved the model.
Simply put, legislating DRM is an attempt to do business
by fiat.
This is the exact reason for the holy wars of both the RIAA & the MPAA. The internet greatly reduces the need for their services. The iTunes Music Store is the primary case in point. Apple handles advertising, promotion, & bandwidth and gets 36¢/track sold for their work. The artist produces the content and gets 13¢/track sold (from which the record labels recoup expenses). Now, the record label gets 51¢/track sold. What are they providing in iTMS transactions? Right. Nothing. The iTMS is the future, for film makers as well as musicians. Now independent film makers will no longer need to make feature films to see a return, short subjects can be marketed commercially online. This is the future that so frightens Sony Entertainment.
DRM as a business model is a failure. Data is not a scarce commodity, and the marginal cost of production is zero. Thanks to the Internet and the ease of digital copying, there’s really no economic purpose to vast army of middlemen and lawyers that feed off the music industry. As always, businesses must survive by trading a valuable commodity or service people need for money.
DRM is a stop-gap measure to trick people into buying the same music over and over again, to trick them into paying for no added value. The RIAA and MPAA are betting on dumb consumers who will pay for music/movies separately for each device they use it on (or better, each time they hear/watch it). Unfortunately for the *AA, there are cheaper and better ways to acquire the same thing, so DRM loses out.
Enter the lobbyists. For a price (campaign contribution), corrupt senators like Orrin Hatch (R-Utah) will push through legislation that restricts the consumer’s choice. Draconian laws like the DMCA make it illegal for users to “circumvent” copy controls on media they own themselves. A new proposed law would reverse the court decision that allowed consumers to videotape TV and could potentially make all non-DRM media players illegal, not to mention CD-writers and DVD recorders. Better yet, companies like Microsoft and Sony can patent their DRM methods, preventing competing products from being compatible or inter-operable. Meanwhile, the RIAA is busy suing old ladies and teenage girls for sharing their favourite tunes with their friends. New laws in California make recording a movie for personal use a worse crime (in jailtime terms) than stealing an actual DVD or committing manslaughter. In a society where thought and information must be controlled, and companies have a “right” to profit, sharing and giving must be crimes.
Services like the iTunes store demonstrate the desire of consumers to get stuff easily and cut out the middle-man. Unfortunately, $.99 is still a steep price for one song, especially when it’s DRM-encumbered. What’s more, the artist is making as tiny a pittance as ever.
Countries like Russia, which have considerably more civil freedom in this area, are giving rise to better and more innovative music services. One such service, Allofmp3.com, lets me download an entire album in a high-quality MP3 or OGG file (much better than WMA or Sony’s crappy ATRAC) for $2-$3, and the artist gets more than he would through iTMS or Napster. The RIAA middleman gets nothing (woohoo!). Even better, there’s no DRM, and I can opt, at slightly greater expense, for lossless formats like FLAC.
If the US becomes too totalitarian, creativity will just flee elsewhere. Thanks to peer-to-peer software, people know what it’s like to get information for free or cheap, and that genie will never get back inside the bottle.
Paul, the problem is that government and those who own the legislators will try to put the genie back in the bottle, by force.
We’re already seeing the results of that force, as innovation and new techniques are being squashed. the RIAA and MPAA are already tracking individuals by address, and if they get a case where someone has successfully spoofed an address that they wish to prosecute, we’ll quickly see proposed legislation to make it a crime to spoof your internet address. From there, who knows what they’ll try next.
We already have a situation where in order to play a legally purchased DVD, a Linux user has to break the law and import the code cracking software to read it. Since DRM cannot be built into OpenSource software, since anyone can view the source code and modify it to bypass the DRM, laws prohibiting the private ownership or trading of “illegal” source code are obvious.
They’re proposing to make the simple existence of peer-to-peer file sharing illegal.
Exactly the same way that automatic firearms are illegal, so making them is illegal, having the parts is illegal, even having what COULD be the parts is prosecutable. Not to mention “gunsmithing without a license”. The only reason that knowing how to make one isn’t illegal is because books are still relatively free.
What the music and movie companies cannot admit is that they have made *more* money since file sharing has blossomed, and with the crushing of Napster their sales fell. The reason for this is obvious, compressed MP3 files aren’t as good as what is on the CD. Sharing MP3′s allows me to sample new music before I buy, so I know what I am looking for. Take away that ability, and I’d rather not spend the $20 in the first place for something I have not heard and may not like.
Napster gets it’s name from “New Artists Program”. Since its inception it was designed to make it easier for artists to get their material out to the world without having to satisfy the distribution companies first. The distribution companies, of course, objected…
Curt-
It offers services including software search, downloads, store, directory, and so on.
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