DRM, Digital Content, and the Consumer Experience

Lessons Learned from the Music Industry

By Kirk Biglionekirkb@medialoper.com

The future of all media is digital

Many media companies have resisted the transition

They fear piracy and changing business models

Everyone says the same thing

“We don’t want to make the same mistakes the music industry made”

But what were those mistakes?

First, some history

Not long ago things weren’t so bad

Consumers loved CDs

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1993

1994

1995

1996

1997

1998

1999

Source: RIAA

CD Sales (in millions)

Digital content distributionwas not on the agenda

Historically, consumers bought what they were told

A funny thing happened on the way to the 21st century

Consumers are now content creators,

publishers, and distributors

The recording industry was not prepared for

the 21st century consumer

As a result, they made some mistakes

Mistake:Mistaking consumer demand

for piracy

The music industry has long battled piracy

This was a new kind of pirate

Mistake:Failing to offer consumers a

viable legal alternative

Sony’s “The Store” offered DRM protected songs for

$3.50 each

Consumers continued to download from

file sharing networks

Mistake:Declaring war on MP3

Diamond Rio• MP3 becomes portable.

• A clear sign of things to come.

• The RIAA sues.

“We filed this lawsuit because unchecked piracy on the Internet threatens the development of a legitimate marketplace that consumers want”

- RIAA Statement on the Diamond Rio lawsuit June 1999

Actually, consumers wanted portable MP3

Two years later Apple introduced the iPod

Mistake:Litigation as a business model

(this only works if you’re a lawyer)

RIAA Lawsuits

• Dozens of file sharing networks

• 17,587 consumers lawsuits

• 4,553 pre-litigation settlement letters

20,000+ lawsuits

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1,000

2000 2001 2002 2003 2004 2005 2006 2007

CD Sales (in millions)

Source: RIAA

Litigation won’t stop the future

Publishers sue Google

Mistake:Assuming DRM must be

the solution

DRM Myth vs. Reality

Myth:DRM prevents piracy

Reality:DRM has no impact on

piracy

Reality:Piracy requires just one

physical copy

Example:Harry Potter and the Media Pirates

Harry Potter Distribution

Print

Official eBooks

Pirated eBooks

400 million +

0

Unknown

Are you training digital consumers

to be pirates?

Myth:DRM enables a marketplace

for digital content

The marketplace for digital content is enabled by

• The availability of digital content

• A channel for digital distribution (the Internet)

• Widely available and compatible media devices

• Consumer demand

Myth:DRM free = free

Reality:Consumers will pay for

DRM free content

50% of Fictionwise’s gross revenue

is non-DRM sales

Source: IDPF

Why consumers hate DRM

Too many locks

Competing and Incompatible Digital Music Systems

• Apple FairPlay

• Microsoft PlaysForSure

• Microsoft Zune

• Helix

• Sony OpenMG

Competing and Incompatible eBook Systems

• MobiPocket

• Kindle-MobiPocket

• Microsoft Reader

• Adobe Acrobat

• eBookwise

• eReader

• Sony Reader

• Osoft Thought Reader

• VitalSource

• eBook Technologies

Too risky

Sony DRM installs Spyware

Virgin Digital Disables Music

Google Disables Videos

MLB Disables Videos

Gemstar/Rocket fails.Early adopters lefthigh and dry

Is it any wonder why consumers hate DRM?

So, how do we explain iTunes?

Apple focuses on consumers

Apple gave the major labels exactly what they asked for

In exchange the major labels gave up

• Control over pricing

• Control over distribution

• Control over the future of their industry

“We were just grateful that someone was selling online. The problem is, he [Steve Jobs] became the gatekeeper. We make a lot of money from him, and suddenly you’re wearing golden handcuffs.”

- Doug Morris, CEO, Universal Music Group Wired, December 2007

Kindle is iTunes for eBooks

What Consumers Want

eBook Consumer Preferences

• Reasonable pricing

• Wide selection

• Interoperable, preferably DRM free

Source: IDPF Survey of eBook consumers

Modern consumers always get what they want

DMCA did not end circumvention

Top Search Phrases at Medialoper.com

“How do I remove DRM”

“How do I transfer DVDs to an iPod”

“How do I burn iTunes videos to DVD”

Why not sell consumers what they want?

“By standing still, or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find. As a result, of course, consumers won”.

- Edgar Bronfman, CEO, Warner Music Group November 2007

10 years later the music industry is finally offering

consumers what they want

All major labels are now selling unprotected MP3s

Why didn’t someone think of this back in 1997?

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2003 2004 2005 2006 2007

Digital Music Sales (songs - in millions)

Source: RIAA

0

250

500

750

1,000

1997 1998 1999 2000 2001 2002

Digital Music Sales

Source: RIAA

How to avoid making the same mistakes

Think like a consumer

Be a consumer

Respect and trust your customers

Questions?

Photo Creditstoo many cds - Tim / frumbert

http://www.flickr.com/photos/frumbert/198714112/

Cassette - Wikipedia ttp://en.wikipedia.org/wiki/Compact_audio_cassette

8 Track - Wikipedia http://en.wikipedia.org/wiki/Stereo_8

45 rpm - Wikipediahttp://en.wikipedia.org/wiki/45_RPM

Internet & Tacos - dro!d http://www.flickr.com/photos/lecates/454787692/

T' Jolly Roger, aye. - Nick Humphries http://www.flickr.com/photos/nickhumphries/1405653435/

Pirate fry, Yaarrrrr! - Lazy_Lightning http://www.flickr.com/photos/drienne/1408143205/

A Year's Work - Jürgen Fauth / muckster http://www.flickr.com/photos/muckster/348090465/

DRM - Noah Hall / rebopper http://www.flickr.com/photos/71715246@N00/521723595/

A lock on my door - Frank Loohuis / Almighty Photography http://www.flickr.com/photos/frankloohuis/1249246740/

Bomberos - Stefan Sonntag / zerega http://www.flickr.com/photos/zerega/1029076197/

Nesting Dolls - Andy Ihnatko / andyi http://www.flickr.com/photos/andyi/482006549/