Most European Music Execs Agree with Jobs on DRM

A report issued last week by JupiterResearch lead analyst Mark Mulligan, just two days after Apple CEO Steve Jobs published an open letter advocating the end of digital rights management for downloadable music, revealed that in a continental survey of European music industry executives, more than half agree with the statement that DRM measures are "overly restrictive," and an astonishing 62% agree that dropping DRM measures altogether would drive consumer adoption of downloadable digital music.

Among the subset of those executives who produce records as well as downloadable music, that figure is 48%, though it rises to 58% when only counting executives of "major record labels." For the remainder, the figure is 73%.

However, other statements to which the same executives responded indicate they aren't exactly ready to drop DRM anytime soon - just that nothing better has come along so far to help guarantee them a revenue model. "For the majors, and most importantly their decision making elements, DRM is the essential means of generating due revenues against usage," Mulligan writes. "They are also concerned about high-quality DRM-free files finding their way onto file sharing networks, thus reducing the quality advantage of legitimate services (though CD ripping is a bigger threat)."

Indeed, 70% of all executives surveyed agreed with the statement that DRM interoperability is "key to growth." Evidently, what executives perceive as the fault of DRM as a concept is that it hinders the consumer's rights with regard to how to use it. That problem could be solved, many in the industry believe, through the adoption of a single, open standard for DRM.

From Jobs' point of view, even that single standard would be hampered by a critical flaw in the DRM scheme: its reliance upon secrets that "smart people" will eventually discover.

In his open letter last week, Jobs writes, "The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get free (and stolen) music. They are often successful in doing just that, so any company trying to protect content using a DRM must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game."

One solution that music industry executives appear to be more willing than ever to consider is the interoperability approach, which might give consumers less incentive to try to crack a DRM scheme if files were more portable and flexible. But on this, Jobs cautions: "On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its FairPlay DRM. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak."

Jobs' comments prompted John Kennedy, the chairman and CEO of IFPI - the global representative of the recording industry - to respond: "After such a long period without interoperability, it seems to me that the right thing to do would be for Steve Jobs to sit down with the industry and say, 'I believe these are the consequences if I allow interoperability,' and for the industry to explain how we believe that some of the side effects that he believes are inevitable are not inevitable. There would be a sensible discussion of the pros and cons, a risk/reward assessment, and a discussion to make sure we are not throwing out the baby with the bathwater, and, most importantly, to preserve the right of all rights holders, big and small, to decide whether they want to implement DRM on their intellectual property."

It is by far the most open language we have heard on the subject in quite some time from the recording industry at large - perhaps an acknowledgment that its members are privately assessing the risks and rewards of withdrawing DRM if the unshackled content then attracts more paying customers, even though they may eventually, in his view, reawaken to reality. Kennedy adds that existing DRM makes feasible business models including subscription services, and the ability for rights holders to prescribe how their content is used, and for how long.

The IFPI and its members have been backing the efforts of the Coral Consortium, a group chartered to produce a single, interoperable DRM scheme that content producers may be willing to adopt, assuming they care to see their investment in time, effort, and resources pay off some day.

In Coral's own open letter last week addressed to Jobs, the president of its board of directors, Jack Lacy, wrote, "We have been wrestling with the issues around interoperability for some years and have concluded that it is not so much a technology problem as a business problem." Lacy then invited Jobs to download the Coral specifications for himself, and have his engineers address the problem of whether it could be made interoperable with iTunes.

But interoperability isn't exactly the solution Jobs had in mind. Perhaps with music written by another veteran of a company called Apple playing in the background, Jobs wrote, "Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat."

However, the route to such a utopia, in the minds of music executives polled by JupiterResearch last week, appears to involve marching to a tune whose lyrics include, "Imagine there's no Apple." While only 28% of executives polled agree with the statement that DRM is absolutely essential to digital music distribution, Mulligan writes that consumer demand for interoperability, from the executives' perspective, appears low. It might rise, however, if there were some kind of "iPod killer" or other alternative to the iPod/iTunes powerhouse. In short, they believe Apple itself remains the problem.