Following an interview with Virgin Digital's Zack Zalon, BetaNews sat down with Napster Chief Technology Officer Bill Pence to discuss a variety of topics related to digital music and to learn more about the future directions of Napster. Pence shares his perspective about Apple's unwillingness to open up the iPod, the "benefits" that DRM presents, rival RealNetworks "imitating Napster," and whether or not Napster has "sold out."

(Continued from Part 1 of the interview)

BetaNews: Should there be industry standards for DRM?

Bill Pence: I think we feel like interoperability would be a great thing for the market as a whole. As you know, Napster in its prior life was PressPlay. Even though we were based on the Microsoft system, we did for a time support Sony devices through transcription of the content from one DRM system to another. So I think over time, I don't believe that the industry will evolve to a "standard" DRM.

Already, different protection schemes exist on set tops boxes in terms of conditional access and things like that. There will possibly be different ones for the PC and other platforms, but I do think that as those systems get whittled down to a few remaining survivors -- you could argue that they already are in the online music space two, possibly three remaining that are relevant -- that you'll come to a situation where you sort of facilitate interoperability amongst the survivors. Eventually the issue will diminish in terms of being a consumer facing issue. I don't know at the end of the day if that means there will be one standard DRM.

There's not even one standard codec right now. If you buy an MP3 player today, when you look on the box you see that it supports MP3, WMA, AAC, maybe Ogg Vorbis, or whatever. So you don't really have a single codec environment today and yet codecs are not as much of an inhibitor to interoperability as the DRM is. So I expect the DRM to evolve in a similar way.

BN: Should DRM be hidden from the consumer? In other words, should the consumer not have to encounter the restrictions imposed to the DRM?

Pence: In our service, and I think it's true in most services, the DRM is not consumer facing as long as you follow the terms of the service. In Napster and Napster To Go you only encounter the DRM if you try to do something with the content that is outside of the terms of the service. For example, if you were to share your file on a peer-to-peer service the recipient of that file will get an offer to join the Napster service when they try to play it. It won't play.

If that's your definition of being in the consumer's face then so be it. The DRM is there to offer different choices to users. Without the DRM we could not offer different business models like all-you-can-eat, or a la carte, or portable subscriptions. So, the DRM in that sense is really an enabler of choices for consumers. And it really only becomes a consumer facing issue when you go outside of the boundary conditions established by the content owners.

BN: How about the concept of fair use? When I purchase a CD I may want to lend it to a friend. Given that scenario, is DRM stripping consumers of their existing rights or are there other DRM options?

Pence: Well, we think in a service like Napster we provide a lot of benefits to the user by virtue of being a network-based service. For example, in the current Napster service, if you accidentally delete a file, you can push a button and re-download the file. By the way, not all of our competitors do this. Apple is a good example: If you blow away your copy of the iTunes track you have to buy it again. In the Napster service we know that you purchased it and have a record of that - sort of a collection that you can access at any time if your machine gets hosed and if you format your hard drive.

So there are some things that you gain in terms of being a digital service. In the old days if you lost your CD, it wasn't like you could go to the store and they would give you a new CD. We try to provide as many benefits like that within reason. There are some areas where it's very, very difficult to differentiate between a legitimate activity and an illegitimate one. So, is there a way to facilitate sharing of a file with a friend and at the same time prevent illegal sharing of content to the masses? Areas like that get to be pretty difficult.

We do have sharing facilities in the service. I can take a track and I can e-mail it to a friend outside of the Napster service using a "send to a friend" facility. They can listen to a 30-second clip of that track without purchasing it and things like that. We try to provide as much as we can, but at the same time you have to prevent the illegal activity from occurring. We try wherever possible to provide fair use within the bounds that we can.

BN: Apple allowed me to re-download music.

Pence: I think you get a certain number of copies, but that's it.

BN: Will Napster consider translating Apple's DRM like Real does with Harmony?

Pence: What Real has done with Harmony, setting aside the legalities or the perceived legalities of it, our view would be that it is not a particularly customer friendly way of addressing the issue. Apple has every right to decide when and how to license its software to others and they have decided not to license it. Whether or not that's a good decision or a bad decision for them I don't know, but it's certainly a legitimate business decision.

To go and reverse engineer their code, I would argue, is a very fragile way of providing compatibility and its pretty brittle software. When this happened last summer, we predicted that Apple would close the loop when they are good and ready. I was telling people that they are not going to put out some kind of emergency patch that threatens the stability of the system, they will do it at a convenient time and an unpredictable time. Sure enough, they did it.

Whether or not it's wise for Real to continue to reverse engineer the thing again and again I can't say. But as a consumer, why would I buy track from Real if my desire is to put it on an iPod when sometime down the line I may have a problem with that track. It's just not in my mind consumer friendly to sell something to someone on the basis that it is compatible with a device when in fact it may no longer be compatible some time down the line.

Our approach is that we recognize the iPod as the leading device out there, we'd love to have compatibility with it. We'd love it if we had a way to do that with a legitimate license, and I think that's our position.

BN: Is Apple hindering Napster's ability to complete by walling in the iPod?

Pence: I think that there's no question that compatibility with the iPod, if it were done in a way that you could legitimately say to consumers we have a legitimate form of compatibility that we could bank on, that would be a good thing. However, having said that, our focus is on the subscription side of the business and not on the a la carte side. Clearly we remain the number two in the market in terms of a la carte sales; even though Rhapsody supposedly has this iPod compatibility, that has not enabled them to sell more a la carte tracks than us.

On the subscription side my guess is that it does less to hinder our market, because there is a segment of the subscription market that is happy without portability. Also, at the current time, I do not believe that the current set of iPods would be capable of supporting portable subscriptions anyway, because the fundamental issues with the lack of a real time clock.

But if Apple could produce a device that could be subscription enabled, that is something that we would love to support. I don't think that it has held back our business on the subscription side in a significant way. The other devices vary in quality, but there are some that are quite compelling and getting better all the time.

I just think that overtime the service will be the important issue here, the experience one has with the service, the ubiquity of the service and ability to access content on PCs, on cell phones, on televisions, and on portable devices is really where we see ourselves going. While the iPod is vitally important, we no longer view that it hinders us as perhaps you might think.

BN: Does Apple harm iPod users by limiting consumer choice as some critics have alleged?

Pence: I couldn't really answer that.

BN: Sure you can.