[Infowarrior] - Steve Jobs Note: End DRM

[Richard Forno]

Thoughts on Music
http://www.apple.com/hotnews/thoughtsonmusic/

Steve Jobs
February 6, 2007

With the stunning global success of Apple¹s iPod music player and iTunes
online music store, some have called for Apple to ³open² the digital rights
management (DRM) system that Apple uses to protect its music against theft,
so that music purchased from iTunes can be played on digital devices
purchased from other companies, and protected music purchased from other
online music stores can play on iPods. Let¹s examine the current situation
and how we got here, then look at three possible alternatives for the
future.

To begin, it is useful to remember that all iPods play music that is free of
any DRM and encoded in ³open² licensable formats such as MP3 and AAC. iPod
users can and do acquire their music from many sources, including CDs they
own. Music on CDs can be easily imported into the freely-downloadable iTunes
jukebox software which runs on both Macs and Windows PCs, and is
automatically encoded into the open AAC or MP3 formats without any DRM. This
music can be played on iPods or any other music players that play these open
formats.

The rub comes from the music Apple sells on its online iTunes Store. Since
Apple does not own or control any music itself, it must license the rights
to distribute music from others, primarily the ³big four² music companies:
Universal, Sony BMG, Warner and EMI. These four companies control the
distribution of over 70% of the world¹s music. When Apple approached these
companies to license their music to distribute legally over the Internet,
they were extremely cautious and required Apple to protect their music from
being illegally copied. The solution was to create a DRM system, which
envelopes each song purchased from the iTunes store in special and secret
software so that it cannot be played on unauthorized devices.

Apple was able to negotiate landmark usage rights at the time, which include
allowing users to play their DRM protected music on up to 5 computers and on
an unlimited number of iPods. Obtaining such rights from the music companies
was unprecedented at the time, and even today is unmatched by most other
digital music services. However, a key provision of our agreements with the
music companies is that if our DRM system is compromised and their music
becomes playable on unauthorized devices, we have only a small number of
weeks to fix the problem or they can withdraw their entire music catalog
from our iTunes store.

To prevent illegal copies, DRM systems must allow only authorized devices to
play the protected music. If a copy of a DRM protected song is posted on the
Internet, it should not be able to play on a downloader¹s computer or
portable music device. To achieve this, a DRM system employs secrets. There
is no theory of protecting content other than keeping secrets. In other
words, even if one uses the most sophisticated cryptographic locks to
protect the actual music, one must still ³hide² the keys which unlock the
music on the user¹s computer or portable music player. No one has ever
implemented a DRM system that does not depend on such secrets for its
operation.

The problem, of course, is that there are many smart people in the world,
some with a lot of time on their hands, who love to discover such secrets
and publish a way for everyone to get free (and stolen) music. They are
often successful in doing just that, so any company trying to protect
content using a DRM must frequently update it with new and harder to
discover secrets. It is a cat-and-mouse game. Apple¹s DRM system is called
FairPlay. While we have had a few breaches in FairPlay, we have been able to
successfully repair them through updating the iTunes store software, the
iTunes jukebox software and software in the iPods themselves. So far we have
met our commitments to the music companies to protect their music, and we
have given users the most liberal usage rights available in the industry for
legally downloaded music.

With this background, let¹s now explore three different alternatives for the
future.

The first alternative is to continue on the current course, with each
manufacturer competing freely with their own ³top to bottom² proprietary
systems for selling, playing and protecting music. It is a very competitive
market, with major global companies making large investments to develop new
music players and online music stores. Apple, Microsoft and Sony all compete
with proprietary systems. Music purchased from Microsoft¹s Zune store will
only play on Zune players; music purchased from Sony¹s Connect store will
only play on Sony¹s players; and music purchased from Apple¹s iTunes store
will only play on iPods. This is the current state of affairs in the
industry, and customers are being well served with a continuing stream of
innovative products and a wide variety of choices.

Some have argued that once a consumer purchases a body of music from one of
the proprietary music stores, they are forever locked into only using music
players from that one company. Or, if they buy a specific player, they are
locked into buying music only from that company¹s music store. Is this true?
Let¹s look at the data for iPods and the iTunes store ­ they are the
industry¹s most popular products and we have accurate data for them. Through
the end of 2006, customers purchased a total of 90 million iPods and 2
billion songs from the iTunes store. On average, that¹s 22 songs purchased
from the iTunes store for each iPod ever sold.

Today¹s most popular iPod holds 1000 songs, and research tells us that the
average iPod is nearly full.  This means that only 22 out of 1000 songs, or
under 3% of the music on the average iPod, is purchased from the iTunes
store and protected with a DRM. The remaining 97% of the music is
unprotected and playable on any player that can play the open formats.  Its
hard to believe that just 3% of the music on the average iPod is enough to
lock users into buying only iPods in the future.  And since 97% of the music
on the average iPod was not purchased from the iTunes store, iPod users are
clearly not locked into the iTunes store to acquire their music.

The second alternative is for Apple to license its FairPlay DRM technology
to current and future competitors with the goal of achieving
interoperability between different company¹s players and music stores. On
the surface, this seems like a good idea since it might offer customers
increased choice now and in the future. And Apple might benefit by charging
a small licensing fee for its FairPlay DRM. However, when we look a bit
deeper, problems begin to emerge. The most serious problem is that licensing
a DRM involves disclosing some of its secrets to many people in many
companies, and history tells us that inevitably these secrets will leak. The
Internet has made such leaks far more damaging, since a single leak can be
spread worldwide in less than a minute. Such leaks can rapidly result in
software programs available as free downloads on the Internet which will
disable the DRM protection so that formerly protected songs can be played on
unauthorized players.

An equally serious problem is how to quickly repair the damage caused by
such a leak. A successful repair will likely involve enhancing the music
store software, the music jukebox software, and the software in the players
with new secrets, then transferring this updated software into the tens (or
hundreds) of millions of Macs, Windows PCs and players already in use. This
must all be done quickly and in a very coordinated way. Such an undertaking
is very difficult when just one company controls all of the pieces. It is
near impossible if multiple companies control separate pieces of the puzzle,
and all of them must quickly act in concert to repair the damage from a
leak.

Apple has concluded that if it licenses FairPlay to others, it can no longer
guarantee to protect the music it licenses from the big four music
companies. Perhaps this same conclusion contributed to Microsoft¹s recent
decision to switch their emphasis from an ³open² model of licensing their
DRM to others to a ³closed² model of offering a proprietary music store,
proprietary jukebox software and proprietary players.

The third alternative is to abolish DRMs entirely. Imagine a world where
every online store sells DRM-free music encoded in open licensable formats.
In such a world, any player can play music purchased from any store, and any
store can sell music which is playable on all players. This is clearly the
best alternative for consumers, and Apple would embrace it in a heartbeat.
If the big four music companies would license Apple their music without the
requirement that it be protected with a DRM, we would switch to selling only
DRM-free music on our iTunes store. Every iPod ever made will play this
DRM-free music.

Why would the big four music companies agree to let Apple and others
distribute their music without using DRM systems to protect it? The simplest
answer is because DRMs haven¹t worked, and may never work, to halt music
piracy. Though the big four music companies require that all their music
sold online be protected with DRMs, these same music companies continue to
sell billions of CDs a year which contain completely unprotected music.
That¹s right! No DRM system was ever developed for the CD, so all the music
distributed on CDs can be easily uploaded to the Internet, then (illegally)
downloaded and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online
stores, while over 20 billion songs were sold completely DRM-free  and
unprotected on CDs by the music companies themselves. The music companies
sell the vast majority of their music DRM-free, and show no signs of
changing this behavior, since the overwhelming majority of their revenues
depend on selling CDs which must play in CD players that support no DRM
system.

So if the music companies are selling over 90 percent of their music
DRM-free, what benefits do they get from selling the remaining small
percentage of their music encumbered with a DRM system? There appear to be
none. If anything, the technical expertise and overhead required to create,
operate and update a DRM system has limited the number of participants
selling DRM protected music. If such requirements were removed, the music
industry might experience an influx of new companies willing to invest in
innovative new stores and players. This can only be seen as a positive by
the music companies.

Much of the concern over DRM systems has arisen in European countries.
Perhaps those unhappy with the current situation should redirect their
energies towards persuading the music companies to sell their music
DRM-free.  For Europeans, two and a half of the big four music companies are
located right in their backyard.  The largest, Universal, is 100% owned by
Vivendi, a French company.  EMI is a British company, and Sony BMG is 50%
owned by Bertelsmann, a German company.  Convincing them to license their
music to Apple and others DRM-free will create a truly interoperable music
marketplace.  Apple will embrace this wholeheartedly.