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October 28, 2004

DRM - Bad or good?

I was very interested in Due Diligence's reaction to Charlie Demerjian's article, Prepare to get screwed by digital rights management. Tim Oren, the author of Due Diligence, always has interesting things to say, and he didn't disappoint with these bullet points:

  • Copy protection DRM always destroys end user value, in both convenience and robustness. When you see DRM in a business plan or analysis, it is always there to benefit someone other than the end user. Find out who, it will indicate where power lies in a content value chain.

  • The mere presence of DRM indicates a failure to deliver end user value. If the information object were to lose value when extracted from the bundle or service from it was derived, DRM would not be felt necessary. Therefore the presence of DRM suggests a vendor that is behind the curve, failing to find a new value to deliver as their chokepoint disappears in the digital world.
  • DRM almost always means there is trouble afoot for aggregators ('infomediaries'). If it's an aggregator inserting the DRM, their value added is in question. If it's information originators mandating DRM, then they feel they can damage the aggregator's value with impunity, and will likely try to drive end users' attention to themselves.

I agree with those statements, and as someone very interested in video convergence technologies, DRM can easily stifle innovation and it's my greatest concern in seeing the true value of this technology evolve for the benefit of the consumer. The problem, as I see it, is that the current DRM technologies not only protect the rights of copyright holders, but goes beyond that and tries to stomp out the rights given to owners of copyrighted material. I don't think DRM in and of itself is bad, but those parties that make use of it are quickly crossing the line.

Let's substitute the word "licensing fee" for "DRM" and the same logic applies. Charging users a "licensing fee" to own copyrighted material certainly destroys user value by its very nature. If I could get something for free, I'm a hell of a lot better off than getting charged for it, at least at the micro-level. At the macro-level, not allowing copyright holders to receive money for their work makes things more complicated and in a capitalistic society, only the truly dedicated or truly crazy work for free. We may want things for free, but we also want new things to be created, so we need to find a balance.

The grandmother of all "DRM" is copyright law, and while I'm sure I'll make a few attorneys cringe with my layman's explanation, I think it's important to look at copyright law and how it applies here. Early on when those damned Europeans had the nerve to create the printing press, it soon became apparent that there needed to be protection for creative works that could be re-produced easily and cheaply. In effect, it became clear that the value of the creative work exceeded the value of reproducing it, producing a value of imbalance. As a result, copyright laws were created to put things back into balance again.

Just as soon as the printing press starting making illegal copies of copyright law for all its friends in the neighborhood, it became apparent that giving authors of creative works absolute rights actually really sucked and things shifted too much in the opposite direction. For instance, if I'm a theater reviewer for the London Medieval Times and I want to mention Bill Shakespeare's latest play in an article, I don't want to get sued for just mentioning the play. Quickly, the lawyers, unencumbered by 400 years of relative peace before the 2000 Florida Presidential recount, realized things had to change and they developed the theory of "Fair Use". Basically, it said that there were limits to copyright law and there were times when you can use copyrighted material. Things like news reporting, education, and scientific use were exempted.

It didn't end there, however, when some copyright holder walked by a used bookstore and saw his book being sold lower than the retail price. His take on things is that since he has control over the copyright, he should have control over the price, regardless of whether it was being sold new or used. "No, No, No", said the courts when they came up with the doctrine of "First Sale", which stated that there are rights for people who own copyrighted material too. As long as the owner of a book doesn't reproduce the copyrighted material, you could do whatever you want with the physical copy that you owned.

Things were great for awhile. If you owned a book, you could loan it to a friend, throw it in the fireplace to warm up the room, or sell it on ebay. The DMCA (Digital Millenium Copyrights Act) muddied things up a little by saying that copyrighted material owners can't circumvent copy protection, but for the most part, it seems that the "First Sale Doctrine" remains intact and is a good compromise between copyright holder and copyrighted materials owner.

I think that's where I draw the line and where DRM is starting to encroach on my turf. If I subscribe to HBO and want to record the Sopranos on my Tivo, it is for the most part settled law that I own that particular version of the copyrighted material. I can watch it now or wait until later; I can delete it or I can move it on to a VHS tape for later viewing. That's First Sale Doctrine at its best, as far as I can tell. If I duplicate it and sell it on Ebay, post it on the Internet, or give a thousand copies of it to my friends and family as Christmas gifts, I've walked outside the boundaries of "First Sale" doctrine and into boundary of illegality.

Personally, I don't particularly mind DRM if it protects copyright holders from unlawful duplication. The key word here is "unlawful", and I do have a big beef with it if it prevents me from doing lawful transfers of copyrighted material that I own. Making a DVD that I can watch on airplane is not an unlawful transfer of copyrighted material, particularly if I remove it from my Tivo in the process.

This is my defining line and where I disagree with Tim's statement, "The mere presence of DRM indicates a failure to deliver end user value." I think the mere presence of DRM can indicate a genuine need to protect copyright holders and at a macro-level, help end users by creating incentives for creative people to create new products. Unfortunately, most DRM goes beyond valid protection of copyright and encroaches into the rights of copyrighted material owners, and that's just plain bad DRM. Unfortunately, there is little incentive for copyright holders to create good DRM, so we're stuck with the bad stuff.

Posted on October 28, 2004

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