DRM, Digital Content, and the Consumer Experience

More Lessons Learned from the Music Industry

By Kirk Biglionekirkb@medialoper.comtwitter: @kirkbiglione

#tocdrm

The future of all media is still digital

Media companies are challenged by the transition

Everyone says the same thing

“We don’t want to make the same mistakes the music industry made”

But what were those mistakes?

First, some history

Back in the 90’s things were great

Consumers loved CDs

0

250

500

750

1,000

1993

1994

1995

1996

1997

1998

1999

Source: RIAA

CD Sales (in millions)

Digital content distributionwas not on the agenda

Historically, consumers bought what they were told

A funny thing happened on the way to the 21st century

Consumers are now content creators,

publishers, and distributors

The recording industry was not prepared for

the 21st century consumer

As a result, they made some mistakes

Mistake:Mistaking consumer demand

for piracy

The music industry has long battled piracy

A new kind of pirate

Modern pirates are media samplers, tastemakers, and

marketers

0

250

500

750

1,000

1997 1998 1999 2000 2001 2002

Digital Music Sales

Source: RIAA

Speaking of consumer demand

Ever try to buy a Thomas Pynchon ebook?

Forget the iPod moment

What about a CD moment?

Mistake:Declaring war on digital

Diamond Rio• MP3 becomes portable.

• A clear sign of things to come.

• The RIAA sues.

“We filed this lawsuit because unchecked piracy on the Internet threatens the development of a legitimate marketplace that consumers want”

- RIAA Statement on the Diamond Rio lawsuit June 1999

Actually, consumers wanted digital music

Two years later Apple introduced the iPod

Lesson:Digital is inevitable

Mistake:Litigation as a business model

(this only works if you’re a lawyer)

RIAA Lawsuits

• Dozens of file sharing networks

• 17,587 consumers lawsuits

• 4,553 pre-litigation settlement letters

A 12 year old girl

A family without a computer

A dead person

0

250

500

750

1,000

2000 2001 2002 2003 2004 2005 2006 2007

CD Sales (in millions)

Source: RIAA

Lesson:Litigation won’t stop

the future

Mistake:Assuming DRM must be

the answer

DRM Myth vs. Reality

Myth:DRM prevents piracy

Reality:Piracy requires just one

physical copy

Example:Harry Potter and the Media Pirates

Harry Potter Distribution

Print

Official eBooks

Pirated eBooks

400 million +

0

Unknown

Are you training digital consumers

to be pirates?

Myth:DRM free = free

Reality:Consumers will pay for

DRM-free content

Myth:DRM keeps honest consumers honest

Reality:DRM often turns honest consumers into hackers

Myth:DRM enables a marketplace

for digital content

Reality:DRM shapes the

marketplace for digital content

Case Study:Microsoft PlaysForSure

Widely Licensed• Archos

• Cingular

• Cowon

• Creative Labs

• Denon

• Digitrex

• D-Link

• Ericsson

• Insignia

• iriver

• Kyocera

• Motorola

• Nokia

• Palm

• Pioneer

• Philips

• Roku

• RCA

• Samsung

• SanDisk

• Sonos

• Sony

• Toshiba

Source: wikipedia

Content Providers

• AOL MusicNow

• Musicmatch Jukebox

• Yahoo! Music Unlimited

• Spiralfrog

• MTV URGE

• MSN Music

• Musicmatch Jukebox

• Wal-Mart Music Downloads

• Ruckus Network

• PassAlong Networks

• Rhapsody

• iMesh

• BearShare

Source: wikipedia

By any metricPlaysForSure

was the “standard” DRM for music

iTunes didn’t stand a chance

And then...

PFS Content Providers• AOL MusicNow (closed)

• Musicmatch Jukebox (closed)

• Yahoo! Music Unlimited (closed)

• Spiralfrog (closed)

• MTV URGE (closed)

• MSN Music (closed)

• Musicmatch Jukebox (closed)

• Wal-Mart Music Downloads (switched to MP3)

• Ruckus Network (closed)

• PassAlong Networks (closed)

• Rhapsody (switched to MP3)

• iMesh (switched to MP3)

• BearShare (switched to MP3)

Source: wikipedia

How did this happen?

• Consumer lust: iPod was THE mp3 player

• iPods and iTunes provided superior consumer experience

• iPods weren’t PlaysForSure compatible

“We were just grateful that someone was selling online. The problem is, he [Steve Jobs] became the gatekeeper. We make a lot of money from him, and suddenly you’re wearing golden handcuffs.”

- Doug Morris, CEO, Universal Music Group Wired, December 2007

Case Study:Adobe Content Server

Widely Licensed• Aluratek, Inc.

• Astak

• Barnes & Noble

• BeBook

• Bookeen

• COOL-ER

• Elonex

• Hanlin

• IREX Technologies

• Lbook

• Neolux

• Onyx

• Sony Reader

• Many to more come...

Content Providers• Barnes & Noble

• Books on Board

• eBooks.com

• Fictionwise

• Harlequin

• Kobo

• Sony

• Waterstone’s

• & Many more...

Kindle doesn’t stand a chance

Oh, there’s one more thing

MeetePub vs. ePub

How will this story end?

Amazon follows the Apple Playbook

And extends it

Kindle Everywhere

What Consumers Want

Anyway,Anyhow,

Anywhere I Choose

eBook Consumer Preferences

• Reasonable pricing

• Wide selection

• Interoperable, preferably DRM-free

Source: IDPF Survey of eBook consumers

Modern consumers always get what they want

DMCA did not end circumvention

Top Search Phrases at Medialoper.com

“How do I remove DRM”

“How do I transfer DVDs to an iPod”

“How do I burn iTunes videos to DVD”

Why not sell consumers what they want?

“By standing still, or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find. As a result, of course, consumers won”.

- Edgar Bronfman, CEO, Warner Music Group November 2007

Questions?

Photo Creditstoo many cds - Tim / frumbert

http://www.flickr.com/photos/frumbert/198714112/

Cassette - Wikipedia ttp://en.wikipedia.org/wiki/Compact_audio_cassette

8 Track - Wikipedia http://en.wikipedia.org/wiki/Stereo_8

45 rpm - Wikipediahttp://en.wikipedia.org/wiki/45_RPM

Internet & Tacos - dro!d http://www.flickr.com/photos/lecates/454787692/

T' Jolly Roger, aye. - Nick Humphries http://www.flickr.com/photos/nickhumphries/1405653435/

Pirate fry, Yaarrrrr! - Lazy_Lightning http://www.flickr.com/photos/drienne/1408143205/

A Year's Work - Jürgen Fauth / muckster http://www.flickr.com/photos/muckster/348090465/

DRM - Noah Hall / rebopper http://www.flickr.com/photos/71715246@N00/521723595/

Orwell & DRMhttp://www.flickr.com/photos/jbonnain/523672080/

A lock on my door - Frank Loohuis / Almighty Photography http://www.flickr.com/photos/frankloohuis/1249246740/

Bomberos - Stefan Sonntag / zerega http://www.flickr.com/photos/zerega/1029076197/

Nesting Dolls - Andy Ihnatko / andyi http://www.flickr.com/photos/andyi/482006549/