Wednesday, December 28, 2011

DRM: The product that (almost) nobody wants

A few years ago, I was an industry analyst covering the IPTV (Internet Protocol Television) industry--the video delivery technology used by Verizon (FiOS) and AT&T (U-Verse) in the U.S., and many other companies worldwide. One of the hardware segments of IPTV that I tracked was Digital Rights Management (DRM). When I came on-board, the retiring analyst whom I replaced warned me that the DRM vendors would probably cause me ten times as much grief as those in any other segment. He was right.

DRM is an unusual business: The companies that demand that DRM be used aren't the ones that pay for it. You can't distribute television shows or movies from any of the major television networks or studios unless you have an acceptable DRM system in place. The same is true if you want to distribute eBooks from most of the major publishers (O'Reilly is the biggest fact, O'Reilly demands that its eBooks be distributed without DRM.)

The movie studios, television networks and publishers often specify which DRM systems are acceptable, but they don't pay for them. That cost is borne by cable and IPTV operators, over-the-top video distributors (such as Netflix and Amazon) and eBook distributors. For their part, cable and IPTV operators have their own conditional access systems, and a nearly foolproof way of keeping unauthorized users from getting their content--in the worst case, they can send out a truck and disconnect the pirates from their network. However, that's not good enough for the movie studios and television networks, who want to make sure that their content can not only not be viewed by the wrong people, but that it also can't be copied.

Over-the-top video and eBook distributors are less concerned about piracy than they are about making their services extremely easy to use, in order to stimulate sales. They already require usernames and passwords in order to download content, which helps to insure that only those customers who are authorized to access their content can get it. They want DRM, but they don't want it to make their services hard for average consumers to use. The more hoops that consumers have to jump through in order to purchase, download and use content, the less likely it is that consumers will continue purchasing from those vendors.

Apple and Amazon developed their own DRM systems, which were designed to protect content while making access as easy as possible for consumers. Most other companies don't have the ability to develop their own DRM systems, and that's where third-party vendors come in. Content distributors want the cheapest DRM systems they can get that are acceptable to their content suppliers, because DRM adds no value for the consumer (it actually subtracts value), and it adds cost for distributors while offering little or no value. The only parties that it serves are the content providers, who don't pay for the DRM systems, implement them or deal with customer complaints.

This has created a field of third-party DRM vendors who are fairly paranoid. DRM vendors regularly compete on price, but some companies have chosen other approaches. Widevine, which was acquired in 2010 by Google, had several patents on its DRM technology and would threaten (and sometimes file) patent infringement lawsuits against competitors who were undercutting it on price. Widevine used the same tactics against market research and industry analyst companies that didn't report on the company the way that it wanted, or that put its competitors in a positive light. In the case of the company I worked for, Widevine demanded that we lower the installation counts that we had compiled for some of its competitors. When we refused to do so, it threatened to file suit against us. We easily could have prevailed in any litigation (simply going public with their threat would have been sufficient to destroy their credibility), but the owner of my company caved in and removed Widevine's name from our report, replacing it with "Anonymous". Shortly after, Widevine signed a consulting contract with us, hoping to have more influence over our reporting. When a subsequent report had installation counts for competitors that Widevine disagreed with, they again threatened to file suit, and my company's owner again caved into their demands. I demanded that the company take my name off the report and resigned shortly after, because I didn't want my reputation to be sullied. 

Another company, NDS (owned by News Corporation) refused to give us any numbers for its installed base, but after each report we issued, they would complain loudly that our numbers were inaccurate. When we said that we would be glad to adjust the numbers if they gave us installed base numbers that we could confirm, they said that they were under no obligation to give us any information. Given that they were unwilling to provide any evidence to support their complaints, we stuck with our numbers.

In short, DRM is a product that (almost) nobody wants, where the companies that want it don't pay for it, and most of the companies that are forced to pay for it don't really want it. That would be enough to make just about anyone a little paranoid.
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