insiders filled the audience for "The Truth About Digital Rights Management,"
a crowded brown-bag lunch session held on September 19 in New York by the
Software and Information Industry Association (SIIA). Moderator Lee Greenhouse
kicked off the 90-minute panel discussion by promising the participants
"a moment of influence and, if not the whole truth ... some of the truths
Attendees weren't looking for the revelatory "truth" about DRM. Hype
and posturing weren't needed. This was a knowledgeable group that included
representatives from content and technology companies, consultants, lawyers,
and venture capitalists. They came to hear the word on the street about
DRM's application to content-revenue and customer models.
Greenhouse organized a lively and engaging session. He brought together
four articulate panelists who are in a position to know the economics of
DRM in the content business. Discussion and opinions flowed easily between
them as they responded to Greenhouse's probing questions. The panelists
were Steve Potash, CEO of OverDrive, a leading e-book service company;
Chris North, vice president and general manager of electronic publishing
at HarperCollins; Bill Rosenblatt, president of Giant Steps Media and co-author
of the Wiley-published Digital Rights Management: Business and Technology;
and Bahar Gidwani, CEO of Index Stock Imagery, one of the largest digital
E-Books and DRM
North was introduced by Greenhouse as the "poster child of e-books."
North explained: "We took our time to get into the market. HarperCollins
now has 10 percent of the e-book market share and we are seeing a 15 to
20 percent growth per month in sales of e-books." He added, "HarperCollins
e-books include bestsellers from our publishing list, including Nobel Prize-winning
authors, self-help books, sex, and mysteries."
North continued: "The reality of DRM in e-books is that it is built
into the hardware, and third-party DRM solutions are irrelevant in our
business. DRM can be summed up in one sentence: Use as little of it as
possible. Even pretty good DRM needs to get better."
For example, customers want and need more "activations" per e-book content
purchase. Activations allow readers to access the content on more than
one device. Using the example of Microsoft's four activations per e-book
reader, North said even that wasn't enough for most customers. E-book buyers
are early adopters. They have lots of devices and want to be able to use
their e-books as they move between their home PC, office desktop, laptop,
pocket PC, and wireless units.
"We don't have a technology problem. We need to put consumers in the
driver's seat," North said. Technology turns off buyers when it makes the
purchase difficult. Consumers have definite expectations about using, printing,
and copying. The challenge for content providers is to take the longer
view and create a market solution that makes the product as easy to use
"Good control costs money. Publishers have regained their nerve and
are charging for content. What haven't evolved are the new business models,"
said Greenhouse in his introduction. Rosenblatt emphatically concurred
in his remarks: "Implementing new business models in the consumer space
Who will pay for the development of DRM technology and the experimentation
with business models? "It is anathema to content companies to subsidize
DRM solutions," said Rosenblatt. "Consumer devices and DRM are not going
hand in hand." Neither content nor consumer-device manufacturers will pay
for implementing DRM in under-$200 consumer devices.
Technology is going to outstrip, outdevelop, and outsmart all rights-management
strategies. But most people aren't looking for a way to cheat—they're looking
for a way to comply with reasonable business practices and pricing models.
In talking about music, video, TV, and publishing, Rosenblatt said: "Lots
of things happen [that lay] content open to piracy. It's a dirty little
secret. I heard a major content producer say that 80 percent of the piracy
happens before the product goes out to the consumer."
Trying to create a perfect DRM solution doesn't work. The music industry
attempted and failed with its Secure Digital Music Initiative (SDMI). Record
labels wanted the "perfect" solution, DRM technology vendors vied to get
their software chosen, and device makers that had to implement the solution
sat on the fence waiting to see which DRM system would win. As a result,
only Sony shipped an SDMI consumer electronics product.
"DRM has freed up business opportunities for publishers," said Potash.
"With Microsoft's introduction ofTablet PC, even more of the market will
open up, [and] provide a better consumer experience and an education for
Digital Images Are Different
Most discussions about DRM focus on the problems and prospects for digital
entertainment or text. Digital images present a whole new series of problems,
uses, customer expectations, and business models. Including Gidwani on
the panel was a masterstroke by Greenhouse and SIIA. His comments helped
the audience think about the challenges of DRM in a new way.
"Enabling small-business users is a challenge for DRM because they don't
understand the limits and protocols of using images," said Gidwani. By
limiting the size of the downloaded image, his company ensures that the
occasional customer adheres to the appropriate use of licensed images.
"Our customers need to know about our product to know how to use it," he
said. Frequent users of digital images, such as advertising and marketing
professionals, already understand what is and isn't appropriate under the
terms of their licenses.
"Customers are increasingly willing to tell us how they are using the
images," said Gidwani. He is excited about the possibility of finding new
ways for image licensers and customers to connect and communicate. "But
right now, XML is the only hope we have," he said.
Music and Consumer Business
"The music industry shut the barn door after the horse bolted," said
Rosenblatt. Other panelists agreed that the industry got caught flat-footed.
It found itself facing a major drop in revenue and being left behind by
superior technology created by developers who considered the music business
irrelevant. Happy customers were using far better technology, free of charge.
"The music industry still doesn't have a business model and rights technology
that users find acceptable," said Rosenblatt. The panelists nodded in agreement.
"The buying experience counts," said Gidwani. Remember hanging around
the neighborhood record store with friends? That was an important part
of the music-buying experience. Gidwani pointed out that the music industry
hasn't yet figured out how to sell this added value to customers while
using DRM to assure that it has a viable consumer-accepted business model.
"It is important for content information companies to keep abreast of
technologies," said Emily Pilk, vice president of SIIA's Content Division.
"The pace of development is rapid and mechanisms that may have worked a
year ago may be out of date today. We are very pleased that SIIA has been
able to play such a constructive role in focusing the industry on new business
trends and technologies."
SIIA's Brown Bag Lunch series is held monthly in New York. Additional
events are coming to Chicago, Washington, D.C., Boston, and Seattle. Check
the SIIA Web site (http://www.siia.net)
or contact Emily Pilk at firstname.lastname@example.org
for more information.
The sessions are open to nonmembers, and their attendance fees are kept
low. Bring your own lunch and listen to what the insiders are saying about
the software and content business.
Gail Dykstra is a consultant in content business development, licensing,
and digital rights management. Her e-mail address is email@example.com.