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Friday, December 28, 2007 

2007 is the year DRM died, at least for music


Readers of this blog know that I am no big fan of DRM and so it is with great pleasure that I can now declare that DRM protected music is a thing of the past. Warner Music Group is the most recent label to drop DRM and Sony BMG, the last one out of the four major label that still sells DRM protected music only, is expected to do so in 2008.

The music industry adopted DRM as a mean to create new business models, and most importantly allow them, even in the age of digital media, to re-sell the same music to consumers over and over again in different formats or for different devices. Yet, the only business model that DRM enabled is the Apple monopolistic model. And so the labels killed DRM in an effort to battle this new monopoly that DRM created. Isn't it funny, they turned to DRM to enable new business models, yet it enabled a new business model for Apple and in the process the labels lost control over both legal and illegal digital music downloads. So now they turn to DRM again (by killing it) hoping to re-gain control over their own business. If only they focused their energy in adding value instead of fighting their customers in court and outside of it...

I am telling you all this because, movies are still mostly DRM protected and one can't help but wonder if the lessons from the music industry can be applied to the movie industry. Unfortunately for us, Apple is not yet a monopoly in movie downloads and so the studios do not feel any pressure to do what the labels are doing. Furthermore, since Apple TV is not taking off, they are not likely to become such a monopoly any time soon. Rest assured however, that some form of delivery of Internet content to the living room will emerge and go to the mainstream eventually and when that happen s it will most likely be DRM protected. If that ends up creating a new monopoly then maybe we will be lucky again and the DRM will be killed by the studios for the same reasons as the labels. If however this DRM scheme will be open, chances are that no single entity will monopolize the legal movie download business and hence the studios will have no incentive to kill DRM.

Of-course I am an optimist and a capitalist, so I believe that DRM for movies will eventually be eliminated as well. The reason is simple, something that does not add value to the customer but rather makes for a bad user experience and in the same time has costs associated with it is a great inefficiency and free markets won't tolerate it for long. What I do not know however, is how exactly this story will unfold, just like I did not know a few years ago how DRM protected music would go away, yet it did happen and it happened for the very same root cause, an intolerable market inefficiency.

I think movies are different because for movies DRM can add value: it allows you to rent a movie for a limited time and pay less. The main reason why movies on iTunes do not succeed is that they are too expensive. People may be willing pay $10-15 for a movie that they really like and want to keep forever (the latter criteria, of course, is being hindered by Apple's DRM). But they won't pay that amount of money for the average movie that they consume. This is where a DRM-based rental service comes into play. It allows you to watch a movie once for less than $5. And this is the price point at which people are willing to give an unknown and potentially bad movie a try.

As movie distrubution without DRM won't allow rental, it can only succeed if the prices per movie are reduced drastically, to $5 or even less. And I have no idea whether this price model could possibly generate revenues for the movie industry that are as high as the current system. That's why a change to a non-DRM-based system would be a much bigger step for the movie industry than it is for the music industry.

Tim has a good point. One of the reasons that people buy music is because they want to listen to it over and over, and generally have a greater need for portability. That same need doesn't always exist for movies - where a home theater is the usual format for most consumers.

Perhaps as more media centers are put into vehicles, some of that will change. But for now, the need is different.

An interesting sidelight of this, and you've talked about it before, is the way that the video industry now sells TV series. As such, they now want to protect that video much more. To me, movies aren't as important as television shows.

Moreover, the Internet is global. So the market for consuming these short episodic programs is much greater. Take Doctor Who/Torchwood/SJA for example.

How much does the MPAA represent interests in other countries? Will we in the US start getting Australian or South African produced television shows on our 98 digital channels? Or will we download them and watch them streamed from our TVersity Media Servers?

Mediaholic needs to read Steve Job's comments on DRM. According to steve, he himself would like to see DRM disappear. Jobs makes some very compelling statements in his statement

http://www.apple.com/hotnews/thoughtsonmusic/

but hacky the problem with Steve Jobs' famous argument against DRM is that he didn't put his money where his mouth is. If he is so anti DRM then why hasn't he lobbied to get his Pixar movies non-DRM'd?

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