CHAPTER 2 : THE DISTRIBUTION OF MUSIC ON-LINE
2.3 ON-LINE DISTRIBUTION
2.3.2 Content Stake Holder
Artist/Songwriter: Artists are increasingly aware of the power of the Internet as a means of getting their music to an audience. Many artists, aggrieved at what they perceive as the monopoly by the records labels over physical forms of distribution, are not persuaded by the record industry’s attempt to maintain the same profit margin when there is no physical product to manufacture and distribute. This has resulted in artists sending cease and desist notices to their labels in an attempt to renegotiate their contracts for distribution on-line. This has resulted in limited on-line availability of the music of certain artists.16 In fact, many artists are beginning to wonder whether they need a record label if they can sell on-line. They argue that higher margins more than compensate for lower sales due to reduced promotional support.
Record Labels: Originally record labels viewed digital distribution as a means of cutting out the current distribution and retail overhead and capturing their margins. Generally, labels are realising that their strength lies in content provision not in technology development or retailing. However, their central concern is to protect the integrity of their core asset – content. Thus, as long as digital sales remain a small part of their overall income, they will support any model which strengthens the current off-line model, price points and margin for physical product .17 Until recently, many of
16 Helmore, E. (2001) Guardian, December 13.
the current on-line retail models offered content at a price which is directly comparable to the CD price.18
Digital Rights Management (DRM):
Digital Rights Management refers to controlling and managing rights to digital intellectual property. As we discussed in Section 2.1.2, the mp3 format was designed to reduce the size of audio files. Like any digital artefact, multiple identical copies of an mp3 can be made and distributed outside the control of the copyright owner. DRM technology seeks to maintain the authority of the original, by limiting the rights the user has to the copy. Stefik (1997a,b) specifies three types of digital rights:
1. Rendering rights: define the means by which the copy can be viewed, printed or in the case under discussion, played. It also relates to granting the user a time-limited period to use the copy.
2. Transport rights: define the user’s permissions to copy, to move or to loan. In the debate over defining a secure mechanism for digital music, this refers to the user’s right to make copies of music files, to use them on portable devices or to swap them with others.
3. Derivative rights: refer to the user’s permissions to extract, edit and embed content from the copy in another digital work.
There are three ways to enforce content rights:
1. Through legal means using registration forms, license agreements, and copyright laws. 2. Through legal means by auditing watermarks (unique identifiers permanently embedded in
the content).
3. Technologically, using encryption and user authentication to protect content and only make it accessible under strictly specified conditions.
Most DRM schemes for music nowadays use encryption. However, encryption is often not enough. A major issue in DRM management is the ‘container’ in which the digital content is rendered. If the container allows the user to make unauthorised copies of the digital content then it is ‘untrusted’. A ‘trusted system’ (Stefik, 1997a,b) is a system in which the hardware and software can be relied on to follow certain rules pertaining to the usage rights for the digital content. An example of DRM is the content scrambling system employed on DVD disks which is encrypted so that it can only be decoded and viewed using an encryption key, which the DVD Consortium keeps secret. The DVD player manufacturer must agree to sign a licence agreement with the DVD Consortium which restricts them from including certain features in their players such as a digital output which could be used to extract a high-quality digital copy of the movie. However, the DVD encryption has already been hacked. The decryption software has been bundled with a compression
18 Helmore, E. (2003) Apple tunes in, but music still has a problem. Observer May 4;
format called DivX which allows pc users to rip and store DVD movies on conventional CD ROMs19.
Currently, the entertainment industry is pressing for changes to the hardware and software architectures of current computers so that they can be used as trusted systems.20 A trusted
computer, for instance, would refuse to make unauthorised copies or to play audio or video selections for a user who has not paid for them. However, this conflicts with the interests of consumers for whom the computer is an all purpose device for the manipulation of information whether for work or entertainment purposes. Despite this Microsoft has announced integrated DRM features in a forthcoming secure windows environment, Palladium, which could curb software piracy as well as music piracy.21
Despite attempts by the RIAA to establish a standard DRM for music,22 two proprietary,
non-compatible standard technologies have recently been adopted by Digital Services Providers on the web: Microsoft’s Windows Media DRM23 and RealNetworks DRM.24 These technologies can
impose limitations on which platform the user can play the music file, how long the user may use a downloaded file and whether it can be used on a mobile device. One way to do this is to encrypt the file and register it with a database. Every time the file is used the on-line database is checked for authorisation. If this is not received the file access fails. Since DRM systems are continually hacked, multiple licence updates are required.
Digital Service Providers (DSPs):
The role of the Digital Service Provider is to license its music distribution platform to companies seeking to sell music services under their own brand. They function both as a technology provider and a music clearing house. The best known players in the US market, MusicNet, PressPlay, and Rhapsod, are ventures controlled by the large record companies and Network service companies. MusicNet was founded as a coalition between RealNetworks, AOL-Time Warner, Bertelsmann and EMI, while PressPlay is a partnership between Vivendi-Universal and Sony. The Rhapsody service is distributed by Listen.com, an independently founded company which has recently (April 2003) been acquired by RealNetworks. With so few players in the market, attention has been drawn to the difficulty in securing digital distribution rights for independent DSPs, particularly where there is a conflict of interests with the DSP ventures of the major labels. Anti-trust investigations have been set up by the European Commission, and by the US Department of Justice to investigate whether
19DivX website. http://www.divx.com/
20 A Bad, Sad Hollywood Ending. Business Week online 16/06/2002. 21Can we trust Microsoft's Palladium? Salon.com. July 11, 2002.
http://www.salon.com/tech/feature/2002/07/11/palladium/index.html
22 http://www.sdmi.org/
23 http://www.microsoft.com/windows/windowsmedia/press/prdrm.aspx 24 http://www.realnetworks.com/products/drm/index.html
the majors protect their own ventures by offering non-competitive licensing agreements to independents.25
The iTunes service from Apple computers does not follow the same model as the other providers in that it sells directly to users of Apple computers. Apple’s incentive was to provide a service for MAC owners who had generally been overlooked by the paid services and the file- sharing services. A Windows iTunes service is scheduled to operate before the end of 2003. Spurred on by Apple’s entry into the market place, Microsoft has recently (August 2003) joined with a London-based DSP to provide the first pan-European service selling songs on a pay-as-you- go basis. However, EU anti-trust regulators state that the move bolsters their case against Microsoft for squeezing out competition in the media player market.26
In section 2.3.3, we will briefly examine the services operated by three of the best know DSPs. However, this section will have made clear that the collective panic of the majors in the face of file-sharing has led to the operation of monopolies in the marketplace. This has been exacerbated by a series of mergers and acquisitions which have made it difficult to distinguish between content- provider, distributor and technology-provider.
Media players:
A standard DRM architecture for music would have allowed several music media player vendors into the market place. As it stands, the proprietary DRM mechanisms of RealNetworks and Microsoft are designed to be used with their respective media players: Real Player and Windows Media Player. This squeezes out the numerous other media players such as WinAmp which play unsecured media formats. In some cases, such as Rhapsody, the player software is built into a new (DRM protected) player device.
However, as we stated earlier, recent mergers have abolished the distinction between Media Player vendor, DRM vendor, content provider and service provider. Furthermore, the bundling of the Microsoft Windows Media player into the Windows Operating System means that the Microsoft player is unfairly poised to take advantage of the growth in legally regulated services. Although this is now the subject of an EU Commission anti-trust investigation, it remains to be seen what effective action, if any, can be taken.27