Attendees weren't looking for the revelatory "truth" about DRM. Hype and posturing weren't needed. This was a knowledgeable group that included representatives from content and technology companies, consultants, lawyers, and venture capitalists. They came to hear the word on the street about DRM's application to content-revenue and customer models. 

Greenhouse organized a lively and engaging session. He brought together four articulate panelists who are in a position to know the economics of DRM in the content business. Discussion and opinions flowed easily between them as they responded to Greenhouse's probing questions. The panelists were Steve Potash, CEO of OverDrive, a leading e-book service company; Chris North, vice president and general manager of electronic publishing at HarperCollins; Bill Rosenblatt, president of Giant Steps Media and co-author of the Wiley-published Digital Rights Management: Business and Technology; and Bahar Gidwani, CEO of Index Stock Imagery, one of the largest digital stock-image-licensing companies. 

E-Books and DRM

North was introduced by Greenhouse as the "poster child of e-books." North explained: "We took our time to get into the market. HarperCollins now has 10 percent of the e-book market share and we are seeing a 15 to 20 percent growth per month in sales of e-books." He added, "HarperCollins e-books include bestsellers from our publishing list, including Nobel Prize-winning authors, self-help books, sex, and mysteries." 

North continued: "The reality of DRM in e-books is that it is built into the hardware, and third-party DRM solutions are irrelevant in our business. DRM can be summed up in one sentence: Use as little of it as possible. Even pretty good DRM needs to get better." 

For example, customers want and need more "activations" per e-book content purchase. Activations allow readers to access the content on more than one device. Using the example of Microsoft's four activations per e-book reader, North said even that wasn't enough for most customers. E-book buyers are early adopters. They have lots of devices and want to be able to use their e-books as they move between their home PC, office desktop, laptop, pocket PC, and wireless units. 

"We don't have a technology problem. We need to put consumers in the driver's seat," North said. Technology turns off buyers when it makes the purchase difficult. Consumers have definite expectations about using, printing, and copying. The challenge for content providers is to take the longer view and create a market solution that makes the product as easy to use as possible. 

Who Pays?

"Good control costs money. Publishers have regained their nerve and are charging for content. What haven't evolved are the new business models," said Greenhouse in his introduction. Rosenblatt emphatically concurred in his remarks: "Implementing new business models in the consumer space is hard." 

Who will pay for the development of DRM technology and the experimentation with business models? "It is anathema to content companies to subsidize DRM solutions," said Rosenblatt. "Consumer devices and DRM are not going hand in hand." Neither content nor consumer-device manufacturers will pay for implementing DRM in under-$200 consumer devices. 

Technology is going to outstrip, outdevelop, and outsmart all rights-management strategies. But most people aren't looking for a way to cheat—they're looking for a way to comply with reasonable business practices and pricing models. In talking about music, video, TV, and publishing, Rosenblatt said: "Lots of things happen [that lay] content open to piracy. It's a dirty little secret. I heard a major content producer say that 80 percent of the piracy happens before the product goes out to the consumer." 

Trying to create a perfect DRM solution doesn't work. The music industry attempted and failed with its Secure Digital Music Initiative (SDMI). Record labels wanted the "perfect" solution, DRM technology vendors vied to get their software chosen, and device makers that had to implement the solution sat on the fence waiting to see which DRM system would win. As a result, only Sony shipped an SDMI consumer electronics product. 

"DRM has freed up business opportunities for publishers," said Potash. "With Microsoft's introduction ofTablet PC, even more of the market will open up, [and] provide a better consumer experience and an education for retailers." 

Digital Images Are Different

Most discussions about DRM focus on the problems and prospects for digital entertainment or text. Digital images present a whole new series of problems, uses, customer expectations, and business models. Including Gidwani on the panel was a masterstroke by Greenhouse and SIIA. His comments helped the audience think about the challenges of DRM in a new way. 

"Enabling small-business users is a challenge for DRM because they don't understand the limits and protocols of using images," said Gidwani. By limiting the size of the downloaded image, his company ensures that the occasional customer adheres to the appropriate use of licensed images. "Our customers need to know about our product to know how to use it," he said. Frequent users of digital images, such as advertising and marketing professionals, already understand what is and isn't appropriate under the terms of their licenses. 

"Customers are increasingly willing to tell us how they are using the images," said Gidwani. He is excited about the possibility of finding new ways for image licensers and customers to connect and communicate. "But right now, XML is the only hope we have," he said. 

Music and Consumer Business

"The music industry shut the barn door after the horse bolted," said Rosenblatt. Other panelists agreed that the industry got caught flat-footed. It found itself facing a major drop in revenue and being left behind by superior technology created by developers who considered the music business irrelevant. Happy customers were using far better technology, free of charge. "The music industry still doesn't have a business model and rights technology that users find acceptable," said Rosenblatt. The panelists nodded in agreement. 

"The buying experience counts," said Gidwani. Remember hanging around the neighborhood record store with friends? That was an important part of the music-buying experience. Gidwani pointed out that the music industry hasn't yet figured out how to sell this added value to customers while using DRM to assure that it has a viable consumer-accepted business model. 

Keeping Up

"It is important for content information companies to keep abreast of technologies," said Emily Pilk, vice president of SIIA's Content Division. "The pace of development is rapid and mechanisms that may have worked a year ago may be out of date today. We are very pleased that SIIA has been able to play such a constructive role in focusing the industry on new business trends and technologies." 

SIIA's Brown Bag Lunch series is held monthly in New York. Additional events are coming to Chicago, Washington, D.C., Boston, and Seattle. Check the SIIA Web site (http://www.siia.net) or contact Emily Pilk at epilk@siia.net for more information. 

The sessions are open to nonmembers, and their attendance fees are kept low. Bring your own lunch and listen to what the insiders are saying about the software and content business. 
 
 

Gail Dykstra is a consultant in content business development, licensing, and digital rights management. Her e-mail address is gail.dykstra@dykstraresearch.com.