Mission Statement

Consider the likely scenarios for the future of CD (and other) audio playback on computers and consumer electronic products, including Digital Rights Management, and its effect on relevant stakeholders, and recommend likely solutions

Table of Contents

Mission Statement

Surveying the Problem

Lining Up the Stakeholders

Stakeholder Tension

Defining Digital Rights Management

Mapping the DRM Scenarios

Our Grand Design

Appendix A

Appendix B

Surveying the Problem

Let's begin by stating the obvious, for the record: the Internet may not have changed everything as promised, but it has thoroughly changed the music industry.

One would be hard pressed to identify a traditional U.S. business sector industry more deeply affected by inexpensive, ubiquitous Internet access. Among the other probable market forces affecting the music industry's business,^* recorded products that were relatively scarce and valuable are now easily and cheaply copied and distributed to the masses, thereby devaluing the product.

Technology that allows average consumers to trade electronic files (legitimately or not, of whatever type) and make physical copies of electronic media has found its way into even basic personal computer configurations. Blank CD media costs pennies apiece.

This combination of technology penetration, cheap recordable media and Internet access, and evolving market forces effectively represents a revolution, creating a business crisis for the recording industry.

With RIAA members in a state of turmoil, performers and composers in a near-constant state of frustration that precedes the current crisis, and the RIAA suing consumers for copyright infringement, computing technology and consumer electronic product vendors face an uncertain future.

As part of our task, we considered the current state of digital audio rights management and the business issues precipitated by commonplace copyright infringement. Although we approach the problem from the vantage point of computing and CE technology vendors, we spent considerable effort trying to survey the problem as other stakeholders may see it.

The group discussed the need for a technology-based solution in the form of Digital Rights Management and ways it could be implemented to best serve all affected stakeholders. On the way, we identified those stakeholders, attempted to outline the possible DRM technologies used to solve the problem, and outlined some scenarios that represent implementations of these solutions (including a world without aggressive DRM).

* Despite public comments from the Recording Industry Association of America that imply copyright infringement to be the root cause of the industry's soft business climate, RIAA members face increasingly fierce competition for dollars in their core demographics, such as the video game industry.

Lining Up the Stakeholders

To evaluate the impact of possible changes to DRM across computing and consumer electronic products, we need to put ourselves in the shoes of all stakeholders.

They are:

Content creators: the artists and musicians. Their chief concerns are how DRM affects their livelihood and their ability to make music with familiar tools that improve their productivity.

Content tools vendors: these are the developers of desktop computer-based or standalone content production and reproduction products, both software and hardware. Their chief concerns are customer convenience and managing development cost.

Content owners: these are the record companies (in the case of the master audio recordings and legitimate copies) and music publishers (in the case of song rights licensed for radio and live performance, etc.). In many cases the Content Creators retain the publishing rights, although it is common for record companies to hold the publishing rights or receive a portion of the publishing revenue.

End users/consumers: a self-evident category, consumers represent simultaneously the reason for all other stakeholders' businesses and the source of the RIAA's problems. Consumers value simplicity, low cost, and a sense of ownership over the products they buy. They may sometimes have conflicting desires, like the ability to transfer content fluidly from location to location (including personal files like family photos) while ensuring their own privacy and preventing unauthorized access to their personal data.

Digital Rights Management Developers: these companies provide the intellectual property that enables the tracking, management, and/or copy protection of content. Their chief concerns are the availability of an open market to license products and services, and lending momentum to efforts that mandate use of DRM on consumer products.

Platform vendors: these companies design the basic technologies, communication infrastructure and/or finished products that enable consumers to experience audio content. For our purposes and simplicity's sake, this category includes telecommunication and cable companies, computing and consumer electronic manufacturers, and operating system vendors. Although computing and consumer electronic companies have not competed directly in the past, they are beginning to compete for the same consumer dollars as entertainment products evolve. Computing companies will release products with high quality audio busses, and consumer electronic companies will release products that permit high degrees of interoperability in the home and on the Internet.

Stakeholder Tension

Conflict between the needs and desires of the stakeholders accounts for the untenable situation in today's market.

Consumers, Creators and Owners

Content Creators as a block may not presently care whether or not DRM is successfully implemented, since even "successful" artists see little actual revenue from selling copies of their music. Financially successful artists often make the vast majority of their income from touring, merchandising and publishing rights, not from royalties on record sales, so accordingly some shed few tears for the problems Content Owners face. Some artists might even see more revenue under alternative distribution schemes, like open distribution on the Internet that drives touring and non-music merchandising sales.

Content Owners have shrinking profit margins and even losses to deal with, making impossible a change from within the industry to divide the pie differently between Owners and Creators.

Consumers are increasingly aware of the gulf between the two, making the RIAA's message about piracy undermining artists ring somewhat hollow. Meanwhile, they look for the most convenient option available to get new music. When consumers share files, rightly or wrongly they don't feel they hurt artists. They frequently take advantage of Internet file trading to satisfy their demand.^*

*Whether consumers would be satisfied with an inexpensive, convenient, legally sanctioned alternative, such as developments like Apple's iTunes music store and Napster 2.0, is an open question. Neither are profitable as of this writing.

Beating the DRM-Innovation versus Control

There's a widespread misunderstanding of what DRM is. Many consumers erroneously define DRM as an inflexible copy protection or authentication scheme, perhaps implementing high-grade data encryption. Their confusion isn't groundless; there are so-called "copyright maximalists" who publicly discuss the need for direct or indirect control over every digital copy of content, and this control should take the form of aggressive DRM that protects their interest. The Motion Picture Association of America (MPAA), effectively a peer organization of the RIAA's, often takes this view publicly.

Most other stakeholders would vehemently disagree with a maximilist position-among other issues, implementing an aggressive DRM scheme adds cost and complexity to consumer products and places limitations on consumer uses of content they've purchased and are legally entitled to enjoy under current law.

Moreover, platform vendors (computing hardware, software, OS and CE hardware providers) are motivated not by maintaining the status quo, but by the promise of developing and selling products products to consumers that deliver the ability to play, on demand, any content the consumer wants.

Defining Digital Rights Management

We have pointed to a misunderstanding surrounding DRM as a system of inflexible copy protection or encryption. Instead, DRM has no single or fixed definition other than its literal phrasing: a way to manage digital rights.

We felt the key to any sensible Digital Rights Management scheme, and the sole reason to implement one, is to ensure that contributors receive due credit for their creations. Of course, "due credit" is itself difficult to define.

DRM presents a legal and policy challenge in that there is no widespread agreement among all stakeholders about what falls inside (and outside) the realm of "legitimate" use of digital rights as they are currently defined under copyright laws in the U.S. and internationally.

DRM presents a technology challenge, in that various competing companies present widely different approaches to managing the rights of digital content.

Among platform vendors, predominant thinking in DRM is to enforce the scheme during playback. That is, each time media is played, a decision is made: to play or not to play. However, it may be possible to define a content distribution model that does not enforce management at the time of playback, perhaps improving the consumer's experience.

We attempted to list potential components of DRM, which can include:

• Usage rules, including/versus "fair use"
• Copy protection
• Encryption
• Tracking & collection
• Watermarking
• Fingerprinting
• Restricting digital playback
• Tamper-resistant software
• Dongles
• Time locking
• Authentication & key exchange
• Unique IDs

Mapping the DRM Scenarios

We thought examining various scenarios and analyzing the effects of each on the stakeholders would be the best approach to recommending a solution to the existing business crisis. While the group didn't achieve unanimous consensus on a recommendation, and some opinions differed strongly, we did find a joint meeting of the minds in outlining the above effects of the current situation on all the various stakeholders.

For simplicity's sake and to avoid the difficulties inherent with exhaustively cataloging various approaches, we identified four DRM scenarios that may address our current problems:

1: The Gatekeeper

Here, we assume a system that employs strict copy control and playback control standardization. In this system, there is a strong desired to standardize the same scheme or method (e.g., encryption) on all products. For such a system to work, everybody must be able to implement it, it must be reasonably priced or even free of cost, and it must be reasonably licensed without complicated conditions or terms. Finally, it must not require special hardware. We assume that successful "gatekeeper" solution would implement technology standards controlled by an independent third party. Otherwise, some stakeholders would resist its adoption.

2: The Accountant

This scenario represents a somewhat "weaker" system that balances usability (the need for products simply to play audio when the user wants) with the need for control. It incorporates a smart media player that is capable of metering the playback of audio content.

In this scenario, a pool of revenue is generated by one or more nontraditional methods: a surcharge on recordable media, surcharge on hardware, reporting radio play lists and/or downloads, subscriptions, Internet tax, promotional items, concert tax, one time payment at point of purchase, or a BBC-style equipment license. Additionally, cash can be generated by micro payments incurred each time a song is played.

This scenario relies on a method (which we didn't specify) to figure out how to divide up the cash: allocate based on radio play, number of downloads, Nielsen-style sampling, or by counting the number of plays as reported by the player.

3: The Deadhead

This represents an even weaker system than scheme 2, whereby the media player always allows you to play everything but doesn't track anything.

This system also uses a revenue model where cash is generated by surcharges (though not micro payments) and where artists are paid by some kind of survey system (á la Nielsen) since detailed tracking isn't available.

4: The Bystander

This scenario is actually the status quo, which (now that consumers are being sued for copyright infringement) pleases almost no one.

If we follow the present course, CD sales will continue to decline 10% (perhaps more) year to year to some final minimum. DRM's standardization will remain uncertain, complicating platform vendors' lives-multiple DRM schemes may continue to proliferate with no clearly dominant solution, or some DRM scheme may emerge as the clear winner. Meanwhile, File sharing will continue to flourish in an unpoliced domain.

Our Grand Design

While the group didn't achieve complete consensus, we all agreed something ought to change, with all stakeholders taking an active role to avoid the Bystander scenario if at all possible.

Most of the group recognized the need for the most highly managed scenario to address all the industry's problems. Advocates cited the flexibility it offers in business models and addressing the concerns of all the players. (Dissenters pointed to the likely erosion of customary fair use of copyrights and the probably impact that has on consumer adoption of products with aggressive DRM.)

Appendix A

Another Approach: The nASCAP Rogue Group

Some members of the Playdough group formed a "rogue group" to discuss an entirely approach see the Project BarBQ web site for the report:

http://www.projectbbq.com

Appendix B

Topics we didn't deal with

The group decided to table discussion of three topics to simplify our task, all of which remain open questions:

• The viability of a keychain approach to DRM, or a "value added dongle,"
• Fair use isn't defined in this document, varies from country to country, and moreover seems to be a moving target
• The availability of high quality analog re-recording, which makes any aggressive DRM approach problematic

section 6

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1. Introduction  2. Speakers  3. Executive Summary  
4. IXMF Rollout Outline
5. What Is Interactive Audio? And What Should It Be?
6. Creating a Win-Win-Win-Win-Win-Win Scenario for DRM
7. nASCAP - Stock Market in Media Rights
8. Quality Audio Applications in the Interactive Entertainment Industry
9. Schedule & Sponsors