DRM: Unnecessary, Expensive, Broken

“Academic criticism of DRM and the entertainment community’s enthusiasm for it are two debates that have run on parallel tracks for some time,” Wendy Seltzer, Law professor at the University of Colorado’s Law School, Berkman fellow, and board member of Tor, told me today.

“Policy makers bow to the entertainment companies without listening to academic concerns.”

One such academic paper is “Digital rights management: Desirable, inevitable, and almost irrelevant,” (available here in .pdf format), a three page screed published in 2007.

Digital Rights Management (DRM) software is designed to make it impossible to copy and share songs, movies, software, and other products which, because they are digital, can be distributed virtually for free.

Not all academic research opposes DRM, Odlyzko said, precisely because DRM is complex. “There are all these nobs to turn, so you can produce lots of PhD theses and conference papers,” he wrote to me in an e-mail.

Why DRM Fails Business

Odlyzko wrote that content companies believe that they can extract more value from systems that include DRM even though such systems have never worked. “A rising chorus of voices (including Steve Jobs of Apple) is urging the content industry to give up or at least relax its insistence on DRM.”

The software is a method of forcing an old business model on new technologies that break that business model. In the past, it was easy to charge for songs and movies and even software because it was difficult to copy them or to share them. Today, it is easy to do so.

But users of content prefer flat rate pricing. They use more of the service when it is offered at a flat rate, and more people sign up for it. Odlyzko has the data to show that this is true of a variety of services dating back at least two centuries.

DRM slows downloads and in some cases blocks legitimate users. It is therefore a barrier to smooth commerce.

Content providers may like DRM precisely because it makes it more difficult to use the internet to consume content.

“Let us not forget the long history of content providers opposing new technologies and businesses models, from libraries to the VCR (which was likened by Jack Valenti, the main Hollywood spokesman, to the Boston Strangler) yet learning to live with and love them as time went on. (And indeed, the VCR became one of the main money makers for the movie studios soon after Valenti’s infamous claim),” Odlyzko wrote.

DRM vs. Open Source

Seltzer pointed out that no open source system can ever include DRM, because a system that controls what a user can view is by definition incompatible with one that can be altered by its user. Thus, there are no open source DVD systems, home entertainment systems, or stereos, but the open source voice system Asterisk, along with its for-profit services arm Digium, moves from strength to strength.

DRM therefore obstructs the sharing and co-creating that is a fundamental strength of the internet. “I’ve been focusing recently on what Yochai Benkler calls peer production, independent and sometimes coordinated creativity at the edges. I’m concerned that we not use IP law to bolster old-style centralized production againt decentralized end user creativity.”

Benkler, who spoke two years ago at the Freedom To Connect conference, provides numerous examples of peer production.

Organizations as large as NASA have taken advantage of crowdsourcing to get work done, and open source projects are great examples of how groups can work together outside the corporate structure to build valuable things. Open source projects’ for-profit services arms, such as sendmail.com, show how companies can make money after giving away key aspects of their intellectual property, and can provide a better product when they open it up.

As the entertainment industry and its middlemen try to protect the old business models and gatekeepers, a new method of doing business is growing and succeeding. Cable and phone companies need to change or they will face the fate of those car companies that refused to build greener and smaller vehicles because they could not figure out how to make a profit from them.

In this context, it is the height of irony to see change-denier Ed Whitacre, former CEO of AT&T, in ads as the CEO of GM telling Americans that if they just try GM’s cars, they’ll buy them.

I had a conversation recently with a cabletelco strategy guy and I asked him how he’d compete with hulu and skype and he said that he just had to get the pricing of the bundle right.

The internet breaks that kind of cross-subsidy. Newspapers are falling apart because they used to make money on classified ads and earn status on loss-making investigative reporting.

The phone companies still make most of their money from voice services, and the content industry will never be big enough to replace the revenue that they are about to lose, in both wired and cellular networks, to VoIP.

The cable companies have an interesting phone service — Comcast is now the number three phone provider in the U.S. — but they risk ending up being a provider of basic dialtone unless they open their systems to providers of advanced services.

These companies could survive as providers of basic internet connectivity, but they would have to cut thousands of jobs. While the lobbyists won’t be missed, the union workers will never find another job that pays as well. There will be real pain.

Without action, without change, the cable and phone companies will end up like the record stores — bankrupt.

“I think that there’s a lot of short term thinking in the entertainment industry, and in so many other places in the economy,” Seltzer said. “People think they just have to get through their watch of a few years. They’ll continue the backwards looking policies of the past so that there’s nothing they can be blamed for.”

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