DRM: Balancing Usability with Security

Digital content includes music, movies, games, books, analytical reports, software, satellite broadcasts or anything that offers entertainment, education or information to people in digital form.

Out of the content space, technology was spawned for digital rights management (DRM)—its intent being to prevent piracy and illegal use or distribution of content by unauthenticated users in unauthorized manners. Technologies from companies like Macrovision, RealNetworks, Microsoft, Adobe, MobiPocket, Palm, and in wireless from SDC and LockStream, built rules to restrict the illegal use of intellectual property. However, the early stages of DRM failed miserably, as content originators hurriedly implemented systems that failed to balance usability with security.

DRM strategies, particularly in the music and publishing industries, greatly encumbered the user’s experience and ultimately dampened the excitement around legitimate digital content services. Ensuing consumer frustrations have been the genesis of a war pitting consumer rights advocates against those fighting for protection of intellectual property.

A Tenuous Balance

The biggest lesson learned in the earliest manifestations of DRM was that security should not lessen usability; otherwise, consumers will seek out alternative sources of the same information.

It is difficult enough to get consumers to pay for content, so content providers should handle delicately the cumbersome DRM restrictions on play times, reading intervals or listening times that ultimately frustrated users in early implementations. Content providers cannot afford to offend or punish the majority of their customers for the illegal activities of a small percentage.

Until the content providers find ways to truly balance usability and security, illegal sites like Gnutella, KaZaA, Morpheus and Limewire are expected to flourish, despite efforts by the music industry to eradicate them.

According to Yankee Group senior analyst Michael Goodman, consumers downloaded more than 5 billion audio files from unlicensed file-sharing services in 2001. He predicts the number of downloaded files will grow to nearly 7.5 billion in the next few years, when legitimate services will begin having an impact.

The music labels’ fight to block access to unauthorized sites in the United States have ostensibly failed, as servers have simply been moved to off-shore islands and other locations not subject to U.S. laws. Consequently, several music labels have changed their tack, recently building a lawsuit against major ISPs that enable access to foreign sites that offer free downloads of unauthorized music files. However, some industry observers think these tactics will prove futile, not to mention time-consuming and arduous.

“The content originators can continue to plug holes in the dam, but the next step inevitably will be the erection of a massive peer-to-peer system that bypasses that control by using myriads of servers that are difficult to track,” says Goodman. Once content providers fight that technology, he adds, the bad guys will find a way to encrypt domain names so that destinations are even harder to track.

“Existing content originators are fighting like hell, because to change the status quo is arduous and expensive,” says Brian McPhail, vice president and general manager of consumer software for Macrovision, a traditional DRM player that has 4 billion units of copy-protected content, including satellite products, movies, music and software. He believes many politicians “feed into the status quo,” which he believes has somewhat hindered the progression of new business models.

“Part of the problem is that hundreds of manufacturing plants worldwide have yet to be upgraded so that laser beam etchers for making master CDs are propagated through entire infrastructures,” McPhail adds.

Regardless of the reasons behind it or the parties involved, the war against peer-to-peer file-sharing systems rages on, although Yankee Group’s Goodman predicts unlicensed file-sharing will decline to 3.9 billion in a few years, as legitimate music services are expected to gain considerable momentum.

That pendulum may have already begun to swing, as some content providers are innovating ways to deliver value-added entertainment and information over the Internet. Once content originators move past the period of acrimony, it’s inevitable that new business models will emerge to promote and market content in ways not dreamed up before.

Adding Value: The Holy Grail of Digital Content

The content originators, broadband service providers (BSPs), ISPs and lawmakers are not going to stamp out piracy completely, as no DRM technology is foolproof; rather, they should all focus on how to offer a user experience that is far more compelling or valuable than what they get elsewhere.

Content providers should put their marketing to the test, looking for ways to pack as much value as possible into the original media so that it is not only worth buying, but acts as an upsell to digital content that can prove invaluable to customers and tap entirely new revenue streams.

In fact, outdoing the illegal file-sharing sites shouldn’t take much imagination, as they offer little value outside of offering tracks of music already available on CDs.

“Rather than pumping prodigious amounts of money into litigation, look at next-generation DRM and distribution, billing and OSS that ultimately will enable value-add services that offer users the type of experience that illegitimate sites just cannot mirror. People with more money than time want convenience, and downloading tracks isn’t enough of a value,” says Matt Graves, a spokesman for Listen.com. The company is working with Roadrunner, DirecTV Broadband and SpeakEasy (cable and DSL providers) to deliver Rhapsody, a digital-music service that competes with FullAudio, plus label-backed services such as Pressplay and MusicNet—all of which are offering full song catalogs online, along with the right for consumers to burn songs onto CDs and move them to portable devices.

Music labels handling such performers as Eminem, Dave Matthews and Boyz II Men are beginning to look at new business models as well. For example, Arista Records recently signed a deal with Digital World—a Bertelsmann subsidiary—to use online fan sites to distribute content. For $25 a year, fans can subscribe to download videos and music not found anywhere else, chat with the band, hear unreleased tracks and view rare pictures. “In Q4, you will see record labels being more aggressive with distribution models,” says Ebrahim Keshavarz, executive vice president for marketing and sales at Digital World, which offers software, ASP solutions and consulting services focused on secure digital distribution. Its ADORA middleware layer connects industry standard DRM systems.

Some record labels are now using DRM tools to transform CDs into “privilege keys,” capable of “unlocking” innumerable specialized services available only to the people holding the licensed CDs, according to McPhail at Macrovision. “The goal is to open the spigot between artists and consumers, thus opening up an entirely new stream of revenue.”

With Macrovision’s SafeWrite, for example, consumers put licensed CDs into a PC, after which Web servers recognize the CD as a privilege key and open up exclusive Web sites where die-hard fans can see live Webcasts of each night’s concert during their favorite band’s tour, chat with their favorite musicians, win special backstage passes and concert tickets, or hear tracks not available on CDs.

Bigger acts are starting to put second DVDs into their boxes as well, and online retailers such as MTV, BestBuy, VH-1, RioPort and Amazon are starting to enable direct downloads of free pre-ripped tracks and lyrics available on special sites to promote albums. There, public opinion can be quickly evaluated by watching who visits the sites and setting up on-line questionnaires or chat rooms—all less time-consuming than polling the public through traditional means.

“Electronic software distribution is compelling for many tangible and intangible products,” according to McPhail. “For those things you cannot possibly afford to package in a box, ship to a retailer and hold for inordinate amounts of time on a shelf, the Internet is an invaluable distribution channel.”

When users realize they have a computer virus, or graphic artists want fresh art, or network designers need software for drawing design schemas, the cost of shipping and materials outweighs the cost of electronic licensing and distribution, so the profit margins will dictate that the Internet is the channel of choice for certain types of content, such as:

• Items too arcane for a standard distributor or retailer to stock in a physical form

• Content or items that need to be “refreshed” so often that stocking them would be unreasonable

• Products that require immediate access, such as antivirus software.

“A software publisher client of ours makes a product that people used to download only once a year for $30. We’ve implemented DRM in such a way that consumers are no longer charged at the point of download,” says McPhail. By moving the charge downstream, the software distributor has added value in customers’ minds. “Where they used to pay upfront to use the software, they can now download and use the software for free. Only once they like what they’ve created and opt to have it printed and sent to their house are they charged. It’s designed so that the information cannot be printed anywhere else, so once they get to the point of wanting to print it, it’s worth $40 or $50 to have it delivered to the house.”

In essence, by shifting the charging point, it reduces the consumer’s perception of risk in trying the product.

The same could be true of any type of content. If record labels enable people to listen to songs three or four times for free in order to attract people to a site, inevitably there will be a really good song they want as part of their collection. For those, customers will pay a fee per track.

Value is what Listen.com is currently striving for in its services, mainly by offering greatly reduced download times and enhanced information and links for die-hard music lovers. “We will enable people to create their own on-line radio stations, for example, where they will tell us their 10 favorite artists and we will compile music from those artists according to time period or theme, or whatever method they prefer,” explains Graves at Listen.com. He says the cost will be nominal: “We think people will pay $10 for that, or for tailoring their favorite albums as they wish.”

Graves says that at other sites it can take hours to download tracks and match artists’ names with titles and related information. “If you want the White Album tailored in such a way that it puts all your favorite songs in the order you wish to hear them, for example, we can give it to you through drag-and-drop GUIs and MP3 streams in about 30 seconds. With the streams, your downloads are not ‘tethered’ to your PC; you can put them on any device you want,” says Graves. He is confident Listen.com will build a successful business around offering a superior music experience not possible with traditional distribution or retail sales. Listen.com has revenue contracts with 75 independent record labels, as well as all of the major labels. Its competitor PressPlay has struck deals with about 10, and MusicNet has recently forged a deal with BMG’s Zomba.

The major movie studios also recently jumped on the bandwagon, backing Movielink, which is launching a new service that will allow consumers to receive on-demand, feature-length movies over the Internet.

“DRM traditionally was an anti-piracy technology, but now, it has been extended for behavior and asset and revenue management,” says Penny Lane, vice president of marketing for Smarte Solutions, an emerging player in the DRM space. “You can get revenue out of users who didn’t originally pay for content; rather than scare them away, you need to convert those people into paying customers, maybe by offering them a trial version of the software, or ebook, or CD track once they are caught using an unlicensed CD.” Lane suggests that instead of automatically “detonating” or “shredding” the unlicensed content, providers should offer links to other tracks, or exclusive Web sites where that artist’s yet-to-be-released tracks are available early only to licensed users.

Whether these emerging DRM solutions and new business models will proliferate is yet to be seen. Most in the industry are tightlipped, as early predictions for digital consumption were way off the mark.

“There’s little doubt the market was very overzealous in predicting consumer readiness for digital content consumption,” says Robert Krisciunas, vice president of business development at RightsMarket, as he reflects on how many electronic publishing companies went out of business in spite of those auspicious predictions. “RightsMarket is one of the few in the electronic publishing space to have survived, as most e-book sites, such as Reciprocal, ContentGuard, PublishOne and SoftLock, failed miserably,” he says. Although RightsMarket has survived, the numbers are nowhere near what the market thought they’d be. “I have on my wall the Forrester and IDC reports that portend in 2003, DRM will be a $4.5 million and $6 million industry, respectively,” he says. The problem, as he sees it, has been a lack of compelling value.

“Paper is still very cheap, so to pay for a handheld device made by Franklin and Mobipocket to read books electronically is still annoying to consumers; there are problems with glare and the information doesn’t flow as well digitally as it does on paper,” notes Krisciunas. He concedes that Bookman and Franklin Reader, like the Newton 10 years ago, were products ahead of their time. “Consumer habits dictate who wins or fails,’ he says, “and for now, people find reading a book far more comfortable.”

Krisciunas believes it is today’s high schoolers who will drive the digital content space, but they won’t reach their ultimate buying power for another 10 to 15 years.

Don’t Be the Forgotten Backbone Provider

As new applications and services emerge, online digital content providers will handle the billing for their services; however, the ultimate goal for their broadband partners is to have one consolidated bill so that the networks carrying the content are rightly compensated. The goal is to have branding at the point of service, like NTT DoCoMo does with its online gaming and music content. In DoCoMo’s case, it shuts off phone and all content services until the bills are paid.

Success for American broadband providers will revolve around successful micropayments for consumers, whether for animated characters, soccer scores, music, videos or movies.

In preparation, ISPs and broadband service providers need to integrate DRM with billing systems, so there is persistent protection and authentication of who the user is, and billers can be confident they are billing for services that were delivered.

“Most ISPs and BSPs are kind of watching to see what content proves compelling, but they are reluctant to start messing around with their existing billing systems,” says Listen.com’s Graves.

It is inevitable, though, that billing will have to be revamped, as providers will want to be able to measure and bill for those digital music services that eat up their pipes’ bandwidth. “There is a definite need for tiered broadband pricing, as flat-rate offerings are not cutting it,” Graves says, pointing to recent announcements by AT&T and Charter Communications that they are working on designing tiered pricing. Those and other companies will be looking at how to separate out super users, who upload and download enough music to tax network resources, causing them to operate at a loss.

Thankfully, traditional and emerging DRM technologies have many of the capabilities that can track and manage content, as well as royalties and license revenues procured from the content, so that data can be passed readily to billing systems once they can handle tiered billing. The industry has to figure out how to apply that capability to measure the effectiveness and life span of its content, so it can bill effectively. Because software in the DRM space traces royalty streams back to the originator of the content, it could conceivably trace usage patterns through billing applications as well. For that to happen, there must be tight integration among DRM systems, billing, order management, account management and OSS.

Providers want to capitalize on DRM’s capabilities to track navigation, payments and habits of users. Combined with data mining tools that graphically present data in a massive index of millions of records, organized by columns and rows or pie charts, valuable marketing information can be culled from DRM systems, such as how users navigate sites, what versions of certain songs are listened to and in what order. That will open the doors for the aforementioned digital content services with which content providers, ISPs, BSPs and consumers are experimenting now.

By taking advantage of DRM tracking capabilities, content originators could home in on offering strong security, while building on new capabilities for marketing, account management and order management.