IntroductionIntroduction History LessonHistory Lesson

– DRM, or How Not to InnovateDRM, or How Not to Innovate

PanicPanic!!– Suing the Fans, Capturing Suing the Fans, Capturing

Governments, & Drafting the ISPsGovernments, & Drafting the ISPs

Opportunities for Artists and Opportunities for Artists and Online DistributorsOnline Distributors

New Technology Always Frightens New Technology Always Frightens Existing Content IndustriesExisting Content Industries

YearYear TechnologyTechnology ResultResult

1908 Player Piano1908 Player Piano Compulsory License Compulsory License1920’s Radio BMI/ASCAP License1920’s Radio BMI/ASCAP License

1964 Cassette Tape None1964 Cassette Tape None

1968 Photocopier None1968 Photocopier None

1968 Cable TV Compulsory License1968 Cable TV Compulsory License1976 VCR 1976 VCR Sony – Sony – DMCA §1201(k)DMCA §1201(k)1990 DAT Recorder Stay Tuned1990 DAT Recorder Stay Tuned1996 DVD Industry Agreement1996 DVD Industry Agreement

1998 MP3 Player Stay Tuned1998 MP3 Player Stay Tuned

Late 1980’s “Threat” toLate 1980’s “Threat” tothe Music Industrythe Music Industry

DATDAT Music Industry ReactionMusic Industry Reaction SCMS (Serial Copy Management SCMS (Serial Copy Management

System)System) Computer Industry Reaction to Computer Industry Reaction to

SCMS & LegislationSCMS & Legislation The Audio Home Recording ActThe Audio Home Recording Act RIAA v. Diamond MultimediaRIAA v. Diamond Multimedia

Secure Digital Music Initiative (SDMI)Secure Digital Music Initiative (SDMI)First Response to MP3s - 1998First Response to MP3s - 1998

Record labels organize SDMI; equipment Record labels organize SDMI; equipment manufacturers and software companies joinmanufacturers and software companies join

Call for development of a single digital rights Call for development of a single digital rights management (DRM) standard to protect management (DRM) standard to protect downloads & transfers of copyrighted filesdownloads & transfers of copyrighted files

CE & IT hoped: facilitate new methods of CE & IT hoped: facilitate new methods of Internet digital distribution of musicInternet digital distribution of music

Instead…Instead…

SDMI Compliance, DiagrammedSDMI Compliance, DiagrammedAudio

MoveRender

MoveSecurely

Protected Store

Phase 1 ScreenTrigger Detector

Want SDMI ?

Protect for dist.

SDMI Protection•Trace-ability•Encryption

Re-dist?

UniqueCertificate

Protect for local

use

SDMI PDSDMI PM

Render Copy

Store

Non-SDMI PDNon-SDMI PM

SDMIlogo

SDMIDomain

The world

Non-SDMIDomain

SDMI Protected Content?

No

Yes

No

Yes

No

Pass

FailYes “Player X”

The “?” box represents the ability of an SDMI-Compliant application to implement a variety of licensed operations, including requiring an upgrade to Phase 2.

Rules Interpreter Trigger Detector

?

SDMI: A King Canute Solution?SDMI: A King Canute Solution? 1998-2000 Industries Differ on Digital Distribution1998-2000 Industries Differ on Digital Distribution Agree DRM Useful, But IT says Legacy CD Agree DRM Useful, But IT says Legacy CD

UnprotectableUnprotectable SDMI Devices Market Failure & SDMI MoribundSDMI Devices Market Failure & SDMI Moribund 1999-2005 Unprotected MP3 Players & P2P 1999-2005 Unprotected MP3 Players & P2P

Increasingly PopularIncreasingly Popular Record Industry in Disarray Blames PiracyRecord Industry in Disarray Blames Piracy

– Challenging competition – Mark Cuban on PiracyChallenging competition – Mark Cuban on Piracy– Changing tastesChanging tastes– Changing business model: Edgar Bronfman (CEO Changing business model: Edgar Bronfman (CEO

Warner Music)Warner Music)– Sue their customersSue their customers

The Global Regulatory Climate: The Global Regulatory Climate: Outsourcing EnforcementOutsourcing Enforcement

ISP Filtering/Secondary Liability/“Three Strikes”ISP Filtering/Secondary Liability/“Three Strikes”– EU Telecom Package, UK MOU, French Draft Act, ACTAEU Telecom Package, UK MOU, French Draft Act, ACTA– Graduated Response (“Three Strikes”)Graduated Response (“Three Strikes”)– If filtering makes business sense, pay for it!If filtering makes business sense, pay for it!– Proven to fail –French filtering study, Belgian ISP caseProven to fail –French filtering study, Belgian ISP case

US ENFORCE Act – Passed Senate 9/26/08US ENFORCE Act – Passed Senate 9/26/08– DOJ Civil Enforcement Removed from legislationDOJ Civil Enforcement Removed from legislation

Bush Admin.: Will Not Do “Pro Bono” Legal Work for RIAA/MPAABush Admin.: Will Not Do “Pro Bono” Legal Work for RIAA/MPAA– Still Provides for IP “Czar” in Executive Branch Still Provides for IP “Czar” in Executive Branch – Stiffer penalties for infringementStiffer penalties for infringement

Still suing fansStill suing fans– 30,000+ in US30,000+ in US

Opportunity PingsOpportunity Pings

Artists Should Be in ControlArtists Should Be in Control– Do you need legacy labels?Do you need legacy labels?– You are scarceYou are scarce– Use tech to know and serve your audienceUse tech to know and serve your audience

Artists, “Labels,” IT/CE, Regulators Choice: Artists, “Labels,” IT/CE, Regulators Choice: – Clamp down, attempt to regulate ISPs & Devices, Clamp down, attempt to regulate ISPs & Devices,

keep alienating fans (lawyers win, everyone else keep alienating fans (lawyers win, everyone else loses)loses)

– Innovate, monetize P2P, something radical!Innovate, monetize P2P, something radical!