DRM, Digital Content, and the Consumer Experience
Lessons Learned from the Music Industry
By Kirk [email protected]
The future of all media is digital
Many media companies have resisted the transition
They fear piracy and changing business models
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
Not long ago things weren’t so bad
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
This was a new kind of pirate
Mistake:Failing to offer consumers a
viable legal alternative
Sony’s “The Store” offered DRM protected songs for
$3.50 each
Consumers continued to download from
file sharing networks
Mistake:Declaring war on MP3
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 portable MP3
Two years later Apple introduced the iPod
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
20,000+ lawsuits
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250
500
750
1,000
2000 2001 2002 2003 2004 2005 2006 2007
CD Sales (in millions)
Source: RIAA
Litigation won’t stop the future
Publishers sue Google
Mistake:Assuming DRM must be
the solution
DRM Myth vs. Reality
Myth:DRM prevents piracy
Reality:DRM has no impact on
piracy
Reality:Piracy requires just one
physical copy
Example:Harry Potter and the Media Pirates
Harry Potter Distribution
Official eBooks
Pirated eBooks
400 million +
0
Unknown
Are you training digital consumers
to be pirates?
Myth:DRM enables a marketplace
for digital content
The marketplace for digital content is enabled by
• The availability of digital content
• A channel for digital distribution (the Internet)
• Widely available and compatible media devices
• Consumer demand
Myth:DRM free = free
Reality:Consumers will pay for
DRM free content
50% of Fictionwise’s gross revenue
is non-DRM sales
Source: IDPF
Why consumers hate DRM
Too many locks
Competing and Incompatible Digital Music Systems
• Apple FairPlay
• Microsoft PlaysForSure
• Microsoft Zune
• Helix
• Sony OpenMG
Competing and Incompatible eBook Systems
• MobiPocket
• Kindle-MobiPocket
• Microsoft Reader
• Adobe Acrobat
• eBookwise
• eReader
• Sony Reader
• Osoft Thought Reader
• VitalSource
• eBook Technologies
Too risky
Sony DRM installs Spyware
Virgin Digital Disables Music
Google Disables Videos
MLB Disables Videos
Gemstar/Rocket fails.Early adopters lefthigh and dry
Is it any wonder why consumers hate DRM?
So, how do we explain iTunes?
Apple focuses on consumers
Apple gave the major labels exactly what they asked for
In exchange the major labels gave up
• Control over pricing
• Control over distribution
• Control over the future of their industry
“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
Kindle is iTunes for eBooks
What Consumers Want
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
10 years later the music industry is finally offering
consumers what they want
All major labels are now selling unprotected MP3s
Why didn’t someone think of this back in 1997?
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450
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900
2003 2004 2005 2006 2007
Digital Music Sales (songs - in millions)
Source: RIAA
0
250
500
750
1,000
1997 1998 1999 2000 2001 2002
Digital Music Sales
Source: RIAA
How to avoid making the same mistakes
Think like a consumer
Be a consumer
Respect and trust your customers
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/
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/