By Monika Ermert for Intellectual Property Watch
CANNES – The entertainment industry may have made too many mistakes for digital rights management to become the main model of remuneration in digital sales business models, said experts at the music fair Midem this week in Cannes and its “policy sister” MidemNet Forum last weekend.

Paul Brindley, managing director of music consultancy MusicAlly, spoke about a critical time for DRM, “when even the major labels are thinking to change their strategies.” The panel moderated by him asked bluntly: ‘DRM, do we need ‘em?’

“Without putting too much salt in the wounds, industry has made a lot of mistakes during the last ten years,” said Rolf Auf der Maur, IP law expert at Vischer in Switzerland. Rightsholders had underestimated the impact of digitisation and Internet in the first place, he said at a forum of the International Association of Entertainment Lawyers (IAEL) held at the Midem, which ran from 20 to 25 January.

They failed to make attractive legal offerings, and failed to agree on standards for DRM and technical protection measures (TPM) systems, he said. They also were pricing excessively based on calculations for physical media, charging consumers twice for online content and storage media and they had misused DRM to spy on consumer behaviour.

The Sony/BMG rootkit debacle was perhaps the “last nail” in DRM’s coffin, Auf der Maur said. The rootkit was a piece of software installed at users’ PCs when they played BMG CDs. It not only allowed Sony/BMG to look into the respective PCs, but also made them vulnerable to hacker attacks. The company since has settled in several countries with complainants against the manipulation.

“There will be a pressure for simple licensing model and this will win in the end,” Auf der Maur said. “It may take some years, though. TPM in my opinion will only be accepted very selectively, for example for some premium content like a short-time window after publication.”

Cornelia Kutterer of the Association of European Consumer Organisations (BEUC) agreed with these critical remarks. Consumers, she said, had not only paid twice, but three times with the introduction of DRM: “When they buy the content, when they buy equipment, for example PCs, and when they buy recording media.”

“If content providers apply DRM/TPM, they should not be allowed to collect levies at the same time,” she said. The change from collective payment models – levies – to individual payment models has been favoured by the computer electronics industry, because they hope to get rid of the rising levy burden.

Interoperability: Rallying Cry of Consumers

Consumer organisations, on the other hand, claim that DRM as currently implemented lacks interoperability and by this again burdens consumers financially. “Consumers have the right to listen to online bought music on the device of their choice,” argued consumer organisations and ombudsmen from Finland, Norway, Germany and France when they launched a joint campaign against Apple’s iTunes at the start of the main Midem meeting on Monday.

The Finnish and Norwegian consumer ombudsmen, the French consumer protection organisation Que Choisir and the Federation of German Consumer Organisations are requesting Apple renegotiate agreements with the music industry to allow the downloading of songs not locked to Apple’s devices by DRM mechanisms. A possible short-term solution might be a clear statement that consumers are free to reformat burned CDs by “re-ripping”. But by September 2007 the consumer protection organisations demand that Apple make progress with regard to interoperability.

Apple had first been asked by the majors to put in place the DRM in order to discourage possible unrestricted distribution of the songs they licensed to Microsoft. Music market expert Brindley said it was not without irony that the majors and Apple might be changing places in the DRM war as iTunes had now settled down with nice profits from the system of locking up the content on its devices. Music companies should turn around and tell Music online services: “You cannot get our stuff if you’re not interoperable,” demanded Robert Glaser, CEO of Real Networks. He heavily criticised vertical “silos” like iTunes but also Zoe, Microsoft’s answer to the iPod.

Other representatives of the online music provider market joint, like Eric Pakman, CEO of eMusic, which sold open MP3 files for years, commented on the issue. “We don’t believe that the strategy of the major labels to impose DRM on the retailer will lead to success,” he said with regard to the slow growth rates that still do not outweigh the decline of physical sales. It is not a question of whether DRM is good or bad, said Pakman, but rather in the end it is necessary to satisfy consumer demand.

“Each of the major labels is struggling with the advantages and disadvantages of MP3 distribution,” said John Kennedy, CEO of the International Federation for the Phonographic Industry (IFPI). Yet IFPI still does not want to give up on DRM completely. IFPI Counsel Geoff Taylor said at the Midem DRM session: “The question ‘can we run a successful business if there is no DRM,’ would have to be thought through very carefully.” One would have to live in a “world where we have no control” over content distribution. For some business models like rental this is impossible, Taylor said.

Copyright ‘War’ Rages On

Where does the copyright, DRM and levy “war” leave governments who just rushed to legally protect DRM and TPM according to the WIPO ‘Internet Treaties’ (of 1996) and the EU Copyright Directive?

“I have always clearly said that the law does not make technical protection measures obligatory, but that it is up to the rightsholder to choose if he uses TPM or if he does not use them, according to his business model. It’s he who makes the choice,” French Minister of Culture and Communication Renaud Donnedieu de Vabres said at the Midem. France protects DRM against violation, but on the other hand is one of the firm promoters of private copying backed by the levy system.

The French legislator stirred up heat during the debates for the new French copyright law not only through a possible global license legalising peer-to-peer (P2P) filesharing, but also when he made interoperability something to watch for the administration. A new commission currently in the making shall according to the copyright law monitor problems with interoperability and support legitimate rights of consumers to private copies.

The German government said during their copyright law reform process that DRM and the levy system could coexist, but decided that private copies could not be enforced against DRM or TPM measures, even if the copy were legal.

When the European Union Internal Market directorate started a consultation on a reform of the copyright levy system, France objected strongly to a possible harmonisation of the system. While the European Commission wrote it was concerned that levies had been expanded to devices that were only used for DRM-based usage, the French government warned against killing private copyright by cutting the collective remuneration system. That the Commission adjourned the reform effort “sine die” was said to be a “nice victory” by de Vabres.

Yet at the IAEL seminar a member of the British Collecting Society Alliance MCPS-PRS, Sarah Fauldner, said a lack of harmonisation was “undermining copyright law.” “The net result when it comes to format shifting is: consumers in fact assume what goes in one EU territory goes in every country. And they are astonished that this is illegal in the UK.”

Even allowing one single copy of legally bought content as proposed by the recent Gowers report would only confuse users, she said. “It would send the wrong signal to consumers at the very moment when we are struggling to get them paying for online music,” she said.

The European Union certainly would need some more consultation to settle the levy-versus-DRM issue, said Auf der Maur. “The key might be reliable metadata that allow monitoring how a certain piece of content has been used and thereby eradicating the injustices that arise with the distribution of levies and global licenses,” he said.

Still this is not yet in sight, and the appeal by DRM technology providers to just wait some more time for the real technical solution does not convince many stakeholders after years of problems with the technology. “Do not throw DRM away only because it may take a year longer than expected to fully develop it,” said Michael Bornhaeusser, CEO of SDC, which hopes to come out with DRM solutions acceptable to everybody in the war. “[Bill] Gates and [Steve] Jobs just might be the wrong guys. Come to us,” he said.

Monika Ermert may be reached at info@ip-watch.ch.