Digital Rights Management (DRM) Strategies 2005
Our take-away from the conference downtown New York City

By: Bruce Bahlmann - Contributing Author (your feedback is important to us!)

Created: August 2, 2005

The conference was moderately attended (probably somewhere between 50 and 100 people in all if you exclude the participating vendors and speakers) and there were a handful of vendors (a dozen or so) displaying their products. The conference kicked off with a speech from Bill Krepick (Vice Chairman of the Board of Macrovision). Bill pointed out some common myths of DRM such as: 

• Physical media will disappear within 3-4 years
• MPEG-LA DRM licensing terms are fair and reasonable

Also covered were key issues regarding the use of DRM technology such as enforcing the rights of the content holders, discussing interoperability, indemnity (hold harmless) clauses requested by service providers, and a fair amount of discussion surrounding essential patent claims, public domain technology, and geographical coverage of intellectual property. 

While the focus of DRM claims to be shifting to tackle the broader content value management, consumer transparency, and inter-operability, the key holders of the DRM intellectual property are being asked to “get real”, “stop being greedy”, and to “seek a reasonable business model.” 

During an overview of DRM provided by Bill Rosenblatt (GiantSteps Media Technology Strategies), key intellectual property in the DRM space was described. The key intellectual property includes portfolios acquired by previous DRM pioneers: 

• Intertrust – now owned by Sony, Philips
• Liquid Audio – now owned by Philips
• MediaDNA – now owned by Macrovision
• Xerox’s ContentGuard – now owned by Microsoft, Time Warner, and Thompson 

As well as other known security companies in addition to a growing list of new intellectual property holders that are just now coming out of the woodwork: 

• Matsushita
• RSA
• Digeo
• Pat-Rights Ltd. 

Patent technology around DRM is divided into three camps. DRM implemented completely by software, that which is implemented completely by hardware, and the hybrid combinations of software and hardware. Certainly the most secure DRM is that which is implemented by hardware, the next most secure is the hybrid, and the least secure is via software. However, there is a direct relationship with respect to cost and security. Higher security means higher costs, less interoperability, longer development cycles, potentially shorter shelf life, and limited ongoing flexibility. DRM solutions implemented by software generally are less secure; however they boast a much shorter development cycle, are field upgradeable, they maintain the greatest possible flexibility and interoperability, and cost a fraction of the solutions involving hardware. Software DRM solutions are the dominate form of DRM used today. Only a few specialized groups of vendors still use hardware based DRM which according to the consensus at the conference is on its last gasp. What is most difficult about developing a hardware based DRM is that it must be flexible enough to support all the different ways and means that service providers will want to use it as well as the different types of rights that content owners will want enforced. The more this functionality finds its way to silicon, the less flexible or open such as system will be to new uses, new business models, or new rights dreamed up by content owners. Silicon based DRM must think ahead of current need to have any shelf life to speak of – chip based DRM however is near obsolete the moment it is imprinted on silicon. 

Some of the companies mentioned previously (e.g. Pat-Rights Ltd) have acquired key DRM intellectual property and have focused their efforts on licensing their portfolio (companies such as these have become known as “patent trolls”). A patent troll has only one product - patents (an inventory of intellectual property) so they cannot be counter sued for using patents owned by the parties they sue or anyone else for that matter. As a result of patent trolls and increasing interest in intellectual property surrounding DRM, intellectual property damage awards are up 50%, there has been an 800% increase in licensing, and 70% increase in new patent filings. Note that average patent lawsuit costs around 2 million dollars. 

To combat the growing fear of patent lawsuits from patent trolls a large licensing pool has formed around DRM for mobile devices where companies wanting to build mobile devices or sell mobile services that use DRM technologies can do so with reduced fear of lawsuits. OMA DRM 1.0 is just such an intellectual property pool which was formed by MPEG LA and has over 400 companies participating within the patent pool. However, pooling DRM patents from every major intellectual property holder and getting them all to agree on a licensing model are two different things – creating a “House of Cards” that only works if every significant intellectual property holder plays along. The initial price to license OMA offered in January 2005 was for $1 per device plus 1% of content revenue. This pricing was re-offered 3 months later for $0.65 per device and $0.25 per subscriber per year. Both mobile carriers and device makers rejected the latest pricing and the current status of the licensing pool is at a standoff. Thus the plea from Macrovision for all DRM vendors to stop being greedy and to play nice. 

Sony makes out to be a very interesting DRM company as they are the only company with feet in both camps: content player and standards body (as well as DRM intellectual property holder). About a year ago, Sony joined forces with Philips (also major DRM intellectual property holder), HP (consumer electronics super power), and Fox movie studios to form a consortium known as “Coral”. One of the early fruits of this consortium has been the evolution of something called NEMO (Networked Environment for Media Orchestration) that achieves interoperability among a wide range of devices, formats, networks, and types of service. Since then, several key players have joined the consortium including: EMI Music, Warner Brothers Technical Operations, Inc., Time Warner Cable, Cloakware, Sun Microsystems, Ardtully Technologies, and Kenwood. What is interesting about this initiative is the groups focus on interoperability. People want interoperability from a service and are willing to pay for it. Essentially, interoperability is in alignment with demand and Coral seems to be on the forefront of this area. 

Besides OMA and Coral, the only other two standards are the defacto standards set by the two major players: Apple and Microsoft. Apple’s Ipod and Microsoft’s windows media player (WMP) have an increasingly large following. WMP allows playback of music and video files, Ipod allows playback of music files but not video files (at least not yet). Microsoft’s approach with WMP is to provide a stable platform and they publish a number of open application programming interfaces (API)s to their player to allow third party developers to extend the functionality of WMP as well as embrace the technology into other services (such as re-branding, specialized features, and tight integration with service provider networks and other services). Microsoft also has the ability to tie DRM into its own file format that in turn will be widely adopted through its commanding market acceptance. Apple’s strategy is not unlike their approach to their computer line in that it delivers its own hardware, operating system, and software that produces a high quality user experience combined with an elegant design for a premium price. Apple will even engrave an Ipod which gives it more the look and feel of a piece of jewelry – or precious keepsake. Apple does not provide open APIs nor does it play with third parties – however in an environment host to multiple incompatible standards, record companies suing illegal down loaders, and a clear need for interoperability, Apple’s business is thriving. Still, the “Ipod Issue” as it is being called remains – the issue being that of compatibility of other music services with Apple’s popular hardware music player. 

Historically, when the evolution of a standard is left up to market forces, 3-4 standards win out. When that happens, eventually interoperability becomes more feasible. Today, RealNetworks Harmony is the only software that provides interoperability between Apple and Microsoft’s defacto standard.   

Two exhibitors at the show provide DRM solutions to the broadband service provider space. An overview of these vendors is provided below: 

• ExtendMedia – Based in Toronto, Canada provide DRM solutions for broadband service providers. The currently have some kind of trial going on with two cable operators the details of which they were unwilling to share. The two cable operators include: One in Canada with a tier one provider that they would not name and the other with Cablevision in the US. While it is unclear how their solution scales or addresses the unique needs of cable operators, ExtendMedia claims they can either work as a turn key solution or any part of the solution. Neither Cablevision nor any of the tier one operators in Canada were willing to publicly comment on the success of the trial or what exactly ExtendMedia was providing.
• BeepScience - An OMA compliant solution with an emphasis of supporting the needs of mobile media players. Claims compatibility with computer and set top box clients but there is a lack of information available at these at this time. 

DRM and Home Networks were explored by a group of speakers from technology, standards, and content provider viewpoints. The consensus of the group seemed to suggest that cable MSOs are in the driver’s seat to lead the way for home networking applications followed by ILECs, where as ILECs are in a much better position to drive portable media and other retail focused initiatives. However, inconsistencies among the group give rise to questions in the customer value proposition of home networking services. A reference was made to “hearth and home” meaning that consumers like the idea of an open license use model for any purchased content within the home. Hearth and home comes from the same idea of one’s home being ones castle such that if a member of the home purchased content, the rest of the home should be allowed to view it as well as make a backup copy for repeated viewing or time shifted viewing. However these rights are not always associated with such content and when they are not it does not generate the kind of satisfaction from home users – however users expect that when they view a movie they have the rights to record it and view it later (including make a backup DVD copy of the movie for their own use). 

A recent HP service advertisement was referenced that showed the equivalent of a page from its user manual as a means of promoting the use of this home networks equipment. Today’s home networking applications have not yet evolved beyond requiring complex technical configuration to function and need to practice and embrace the KISS (Keep it Simple Stupid) method. Significant advancements (as well as wide spread adoption) of home networking technology are impeded by the need to cycle out previously installed hardware which on the average will take at least 4 years after it has been installed. Philips is leading an effort to use mobile phones as tomorrow’s next generation remote controls. Using such remote controls allows content services to more accurately individualize content while providing interesting opportunities for targeted advertising. 

In conclusion 

DRM technology is beginning to pay off for those who have invested the time and have waited patiently for the applications that would require it to evolve. Although four main standards have risen above the rest and show the greatest promise to stand the test of time, one cannot escape the need to interoperate. Those services that do not play universally, like apple, may continue to enjoy near term success, but long term outlook for proprietary uses in a world where there is a strong need for all mobile devices and players to interoperate is cloudy. 

The idea of a remote control that is also a cell phone addresses a number of issues surrounding identity management when it comes to operating broadband equipment – especially if that cell phone is a hybrid phone (capable of WiFi, cellular, etc.) 

Independently implementing DRM within a service or a device remains a risky venture – even in light of OMA’s large following. There just does not yet seem to be a one stop shop where you can go to license all the DRM technology you need to deploy a service or a device without any lingering fear of a lawsuit coming up out of the woodwork. From this perspective, Microsoft’s approach seems to offer companies the greatest protection in terms of an end to end DRM solution that comes with the least amount of uncertainty relative to infringing on DRM intellectual property owned by a third party. The smaller the DRM company the greater the risk that any potential infringement will not rest upon the shoulders of the DRM vendor (who probably doesn’t have the deep pockets to pay) but rather the service provider who has deployed a service that uses this intellectual property. As a result any hold harmless clauses offered by such DRM vendors are meaningless, for the third party lawsuit is only interested in those companies that it knows have the money to pay.

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