Steve Jobs and DRM Part I

08Feb07

This post is the first part of a series about the future of Apple’s iTunes strategy. I’m going to start with the much discussed letter from Steve Jobs about DRM from February 6 2007.

First I’m going to summarize the content of the open letter  Steve Jobs wrote.

Steve  addressed the problem of DRM in his letter to the music industry. His first point is, that Apple was pushed onto the DRM bandwagon by the big labels.

“Since Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied. The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices.”

Of course this is not news at all. The music industry has always tried to protect their content against so called piracy and is especially scared about the possibilities of content delivery over the internet. The success of Apples iTunes Music Store and P2P networks have changed the old business model of the record companies. People no longer buy CDs, especially not singels.(When did you buy your last single?) A fast growing number of consumers no longer wants to buy an album but a single song out of the album. They want the content instantly and in digital form.

To get this kind of content these people have two choices. Buy their music from an online store or get it from an P2P network. The first choice will most likely including DRM (With some exceptions)

Apples approach to this situation was to create and use a relatively non restrictive DRM called FairPlay.
But here comes the problem:

“Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services. However, a key provision of our agreements with the music companies is that if our DRM system is compromised and their music becomes playable on unauthorized devices, we have only a small number of weeks to fix the problem or they can withdraw their entire music catalog from our iTunes store.”

Since all DRM is never going to be perfect. all DRM is ultimately going to be cracked. DRM doesn’t work for the online stores because they are liable if their DRM gets cracked. But most important, DRM doesn’t work for the consumer because he has basically no rights to his music.

Apple now proposes three alternatives for the future:

The first alternative is to continue the current course. This basically means that all the major online music distributors, Apple, Microsoft and Sony keep their proprietary DRM technologies, leaving the consumers locked in one of those systems. But is that realy the case? Here’s what Apple thinks about this:

“Or, if they buy a specific player, they are locked into buying music only from that company’s music store. Is this true? Let’s look at the data for iPods and the iTunes store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold.”

I don’t think this argument is valid because it’s not about the music which has no DRM. It’s about the music that has DRM. Because once you have purchased content from iTunes you will indeed be locked into Apple’s iPod ecosystem. That’s exactly why countries like Norway are declaring the iTunes Store illegal in their country.

The second alternative is for Apple to license FairPlay to competitors. Apple claims that this step would compromise the DRM because it’s technical secrets won’t be that secret anymore.

The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak.

The third alternative is to move away from DRM completely and sell only DRM-free music. This would make all the problems described above.

“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. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.”

The world would become a little nicer place to be.
Oddly enough Apple doesn’t mention the problems this move might create for them. Competition on the online music front would get harder because iPod users are not tied to the iTMS anymore. On the other hand Apple is in the strong position of the market leader on the music player side as well as on the music distributor side.
But maybe Apple has come to the conclusion that the loss of the “iTunes-lock-in” might be negligeable compared to what they could gain with the move to DRM-free music.
The question is: What do they gain?

I hope to find some answers in Part II of this article.

PS: Please feel free to comment on this post, I’d be happy to hear your opinion.

Filed under: Apple/Mac, DRM, Media, Music, Thoughts and Issues   |  Leave a Comment