1. technology and computing

Accenture Media & Entertainment
How to Compete
with “Free”
Digital Rights Management Point of View
Executive Summary
Many entertainment industry executives today are
contemplating a complex Digital Rigths Management (DRM)
conundrum: should they secure their content rigorously
at the risk of affecting their user experience, and ultimately
limiting reach, or should they favor reach and relax some
control? Should they charge their users for the content, or
experiment with free or advertising based model? What
options does today's technology offer them?
This study was conducted across the value chain and, in
attempting to answer some of these questions, addresses
strategy and technology issues that concern the creators of
content, the distributors of content, and the consumers of
content. This is a value chain that is in conflict with itself.
Instead of being aligned with a common agenda, it is
increasingly apparent that the three segments of the value
chain have disparate goals and positions.
“Trying to make digital files uncopyable is like trying to
make water not wet…”
Bruce Schnieir, Founder, Counterpane Internet Security (Wired 2006)
Digital Rights Management is the
cornerstone of the digital business
models of the future. It is more
comprehensive than traditional
Conditional Access Systems, offering
far finer and more sophisticated
control over content usage than just
allowing or denying access. It usually
combines encrypted content and an
entitlement process with rules
governing who can access which
content, when, and under what
circumstances. Advanced DRM systems
may go further and enforce more
complex licensing, or support active
revocation and content updating.
DRM will get hacked – but
this is not a deal-breaker
As our research interviews confirmed
time and again, the key to assessing
DRM’s future is to accept that it
always has been, is now, and always
will be vulnerable to breach. This is
a fact of life accepted by everyone
in the digital content value chain.
And the acceptance of DRM’s
“crackability” will not get in the way
of the development of thriving
business models based on DRM.
The signs of this acceptance are
already clear. Microsoft’s Windows
Media is cracked. Apple’s FairPlay is
cracked. Yet the business models
based upon these technologies are
surviving – and while the studios and
record labels have the right to pull
their content, they are not doing so.
The apparent reason is that everyone
“gets” the fact that DRM is intended
to be a consumer component and is
always certain to be breached. Some
amount of loss – euphemistically
called “breakage”, “leakage” or
“spoilage” – is acceptable in most
businesses, so long as the overall
revenue trends positive and the
market trends towards growth.
Like other thieves, online hackers and
digital counterfeiters will always be
with us. The fight against them will go
on. But focusing on the fight itself –
something many have chosen to do –
is perhaps to miss the point entirely.
While legal action might appear to
be a powerful weapon against people
stealing content, it can in practice
be counter-productive, turning
consumers against the company
behind the action. In contrast, the
companies that succeed in the digital
future will be those that accept
DRM’s limitations and focus
remorselessly on winning, engaging
and retaining customers with an
easy and wonderfully fulfilling
media consumption experience, a
vast and usefully accessible array
of content, and an unequivocally
fair price.
How to Compete with “Free” 1
Accenture’s six recommendations for DRM:
Accenture’s six recommendations for DRM:
1. Focus on usability, a fair price, and
cultivating a cool memespace rather
than enforcement – win your
customers, don’t bully or coerce them.
2. Market your product or service
through continuous, pervasive
marketing campaigns. Apple has set
the bar for this approach having
invested half a billion dollars in
marketing iPod and iTunes while
competitors, with better value
products and services, have failed to
be as widely adopted.
3. Content creators and other IP
holders such as DRM companies –
consider lowering your unit prices to
allow certain DRM models to thrive
early in the game. There may be too
many people trying to take too much
profit out of this value chain in its
infancy and it may slow or damage
the market irrevocably.
2 Accenture Media & Entertainment
4. Embrace DRM and drive it –
consciously and with an analytic
methodology: understand and model
your technical requirements and your
business requirements – do not base
your decisions on perceptions; do not
assume that all “Open Standards”
solutions are less expensive – they
may not be.
5. Select a portfolio of options no
matter where you sit in the value
chain, as all possible outcomes will be
determined by value chain dynamics
that co-vary. Gaining market share
incrementally with deeper security
methods and rigorous enforcement
practices, and gaining orders of
magnitude of greater market share
with a compelling consumer
proposition, service and great
marketing are not mutually exclusive.
Most companies tend to focus on one
or the other, high performers adopt
a portfolio of strategies.
6. Accept that right now Microsoft
DRM fits most studio requirements,
and Microsoft may be the only
company in the DRM space that is
immune from having to pay further
fees to DRM IP owners because it
has already paid a US$440 million
lawsuit award.
A world without DRM?
To put this vision in context, let’s
imagine a situation in which there is
no DRM at all. The music industry,
which has inhabited such a world for
some years, is of course much further
along the road than movies or
television in terms of having been
exploited by online downloaders; the
relatively small size of music files
made it an easy target in the 1990s,
and its content has been virtually
unprotected and easy to copy
throughout the past decade.
This has created cultural norms and
habits that encourage free sharing of
music. Despite the success of the iPod,
experts across the music industry
believe only a small fraction of the
songs on all the iPods ever purchased
are in fact legitimate. In the battle
against illegal downloading, many file
sharing services have been shut down;
but new services have taken their
place, and paid-for services have
sprung up that are hosted in countries
that do not support our legal
concepts, giving consumers music for
pennies a song, and not compensating
the record labels or artists at all.
Based on this reality, music executives
are facing some difficult challenges.
One former C-level executive from a
major label told us that he had
suggested giving content away on
peer-to-peer networks. He commented:
“You can’t compete with Free and
Easy-To-Get”. His suggestion was to
flood the P2P networks with the label’s
content, with advertising embedded in
the content, and fund the label with
ad revenue instead of content sales
revenue. If the resources of a record
label were focused on P2P it could
easily saturate the world’s P2P
networks with its content, and disrupt
the P2P consumption experience in
favor of legitimate content.
We believe that even in such “free”
distribution models there is a place
for ultra-lightweight DRM – in order
that the record labels can track the
playback of music so they know
which songs are popular. Otherwise
they will only know which songs are
downloaded, and we believe that
many more songs are downloaded
than are repeatedly consumed.
We are in a decade where people take
such advertising-fueled business
models seriously. The film and
television industries have not yet
experienced losses on the scale of
those suffered by the music industry,
so they are not yet of a mind to strip
off their DRM protection and give
their content away. While we find the
above advertising driven model
interesting for music, we do not think
the music industry has to resort to
that disruptive a model just yet. Even
in models with advertising revenues
as components, it may make sense for
video content to have DRM protection
– if for no other reason than to
prevent the advertising from being
removed from the content. But, as the
comment from our record executive
shows, content can still find ways to
make money even in a world where
it can be copied for free.
How to Compete with “Free” 3
How we got here…
To start building a vision of the future
of DRM, let’s take a look at how we
got where we are today.
The timeline opposite and over the
page, illustrates that the concept of
copyright has its roots as far back as
the 15th Century. Progressive advances
in media technology since then can
be traced from the invention of the
Gutenberg press in 1454 to today’s
digital storage and distribution.
What this timeline shows most clearly
is that this progression is now
accelerating more rapidly than ever
before – putting established legal,
technology and content
management/protection processes
under intense pressure.
As the evolving legal frameworks in
the timeline show, content creators
have long held the view that their
content should not be copied. Their
worst fear was that identical copies
of their high-value content could be
propagated virtually anywhere at
4 Accenture Media & Entertainment
virtually no cost to those distributing
them. In today’s world, that fear has
become reality. The combination of
digitized content, ever more powerful
computers, pervasive use of the
internet and global broadband
networks, together with the web’s
community and search aspects, has
truly let the genie out of the bottle –
putting unprecedented power in the
hands of every consumer.
Eclectic history of technology and copyright landmarks
in the Entertainment industry
1474
“Recuyell of the Historyes of Troy” printed
in Bruges by William Caxton. First book
printed in the English Language.
1454
Gutenberg Bible printed in Mainz,
Germany by Johann Gutenberg,
inventor of printing. Earliest full scale
work printed in Europe using
moveable type. Written in Latin.
1662 Licensing Act
The ability to print books easily and
cheaply raised the issue of piracy.
The Licensing Act established a
register of licensed books, along with
the requirement to deposit a copy
of the book to be licensed.
1681
Licensing Act repealed and the
Stationers' Company had passed a
by-law that established rights of
ownership for books registered to a
number of its members so as to
continue regulating the printing
trade themselves.
1710
Modern concept of limited duration
copyright originated with the British
Statute of Anne.
1400 1500 1600 1700 1800
1810
1820
1830
1840
1927
The Jazz Singer is released
by Warner Brothers.
The first feature length
motion picture with
talking sequences.
1895
The Lumière Brothers held
their first private screening of
projected motion pictures.
1926
Scotsman John Logie Baird
gives the world's first
demonstration of a true
television system, one
that could broadcast
moving images with
tone graduation.
1888
Lateral-cut disc records were
invented by Emile Berliner.
1877
Thomas Alva Edison announced
his invention of the first
phonograph, a device for
recording and replaying sound.
1908
Columbia Records introduced
mass production of disc records
with recordings pressed on both
sides, which soon became the
industry standard.
1861
The first permanent color photo
was taken in 1861 by the Scottish
physicist James Clerk Maxwell.
1842
British Government amended its
own copyright statutes, explicitly
forbidding import of any foreign
reprint of British copyrighted
work into the UK or its colonies.
1886 Berne Convention
First established recognition of
copyrights among sovereign nations,
rather than merely bilaterally.
Influenced by French “droit d’auteur”
(rights of the author).
1846
First reciprocal copyright agreement
between Britain and Prussia. The
British continued this process for
reciprocal agreements until the
Berne Convention.
1850
1860
1870
1880
1890
1900
1911 British Copyright Act
Brought provisions on copyright into
one Act for the first time by revising
and repealing most earlier Acts.
Amendments included the
introduction of a further extension
of the term of protection, together
with a new arrangement for
calculating the term of copyright.
Records, perforated rolls, sound
recordings and works of architecture
also gained protection.
1910
1920
1930
194
40
1999
Napster enables MP3 (compressed music) file sharing
over the net. First peer-to-peer application.
1999
The DVD security method, CSS, cracked.
This is the basis for all of today’s DVD
ripping packages which make the DVD
format virtually unprotected.
1973
Dr. Marty Cooper makes the
first call on a cell phone.
1972
First video game is released,
the Magnavox Odyssey.
1972
David Bowie’s music video
for “Jean Genie” is released.
Considered to be the first
music star to combine all the
elements of the standard
music video.
1970s
Development of the
personal computer.
1996
The first DVD players and discs
were available in Japan.
1991
The first commercially available
digital camera was the Kodak
DCS-100. It used a 1.3 megapixel
sensor and cost US$13,000.
1991
Tim Berners-Lee posted a
short summary of the aims of
"The WorldWideWeb”.
1988
The first true digital camera
that recorded images as
a computerized file was
likely the Fuji DS-1P.
1965
Email started as a way
1982
for multiple users of a
CD introduced, remains the
time-sharing mainframe
standard physical medium for
computer to communicate.
commercial audio recordings
Professional and private
as of 2006.
use of email didn’t
really take off until the
1980s
early 1980s.
Development of the internet.
1952 Universal Copyright
Convention (UCC)
Signed in Geneva. Sought to ensure
copyright protection of literary,
scientific and artistic works in 62
contracting States (developed by
the United Nations Educational,
Scientific and Cultural Organization –
UNESCO).
2007
HD-DVD and Blu-ray security cracked.
2003
Napster acquired by Rexio Inc. and
introduces “Napster To Go”.
2001
Apple launches iPod and iTunes.
2001
Napster “shut down” by
legal action.
1994
Agreement on Trade Related
Aspects of Intellectual
Property Rights (TRIPS)
Treaty, administered by the
World Trade Organization (WTO).
1998 US Digital Millennium
Copyright Act.
1971
UCC revised in Paris. Developing
countries, Soviet Union, US and
most of Latin America joined.
2001 Doha Declaration
Clarifying scope of TRIPS.
1981
US became party to the
Berne Convention.
2004
Microsoft pays US$440 million to
settle DRM dispute with Intertrust
allowing Microsoft customers to use
their software without requiring a
license from Intertrust.
2006
162 countries now party to the
Berne Convention.
2006
French Senate approves amended DRM
legislation. Original draft might have
compelled Apple and other online music
retailers to share their DRM technology.
1950
1960
1970
1980
1990
2000
2010
…and where we are heading
"DRM is not where it should be."
Bill Gates, Chairman, Microsoft
As content propagation methods have
advanced from wax to digital, and
from linear to on-demand – driving
new methods of copying with them –
the fundamental concept of the
“maturity curve” comes to the fore.
The maturity curve – sometimes
called an “S” curve – is a proven
model that describes how new
markets and market leading
companies are born, mature, and
thrive. An immature market is
characterized by slow and uncertain
adoption, proprietary technologies
that do not talk to each other, and
high prices. As the market matures,
components start to work together,
new features are added, and rising
competition drives prices down. Over
time, the consumer gets more and
more functionality for lower and
lower prices. At some point, a groundbreaking innovation emerges that
triggers a whole new and different
maturity curve.
8 Accenture Media & Entertainment
Maturity
Next generation maturity
New proprietary
value add
Standards become
effective
Some companies will choose to avoid standards beyond
the maturity point and will have to innovate and create
new added value and define new market expectations;
this isn’t easy but if they succeed they can continue to
charge premium prices and sacrifice interoperability
High maturity – open and modular
Commoditization
At this point it may be possible for companies to earn more revenue by
supporting standards and fostering interoperability than by ignoring them
X You are here
Low maturity proprietary
and integrated
The remaining “immature” time when companies can harvest maximum
revenue from proprietary DRM methods is believed to be at least five more
years – until 2011, and is likely to be ten or more years, until 2016
DRM maturity is believed to be approximately here; this includes the iPod &
iTunes, and Zune as well as other proprietary DRM methods and even the
current standards supported by major corporations and patent pool companies
Time
Most industry experts believe we are
not yet even halfway up the maturity
curve for DRM-based content delivery
models. Therefore it is not surprising
that we have virtually no cross-device
interoperability, no broadly adopted
standards, a single dominant market
leader (Apple’s iPod/iTunes bundle) in
the content portable player space,
and little certainty about the final
destination. These same experts
believe the first stages of true
maturity may be five to ten years in
the future. They also believe that
Apple and perhaps Microsoft will have
some success in slowing the maturity
curve to extend their ability to
harvest revenue from the pioneering
phase, but that they cannot stop it
entirely. And if these companies are
not wise and swift they may fall
behind an as-yet unforeseen market
leader in the mature phase. This has
happened in many industries before –
and it can happen here.
The emergence of standards is part of
this world view, since they pave the
way for interoperability and eventual
commoditization. The organizations
leading the standards drive in DRM
include Sun, IBM, Hitachi, and
Intertrust. They are not at the
forefront at this point in the maturity
curve, but hope to be in that position
in the mature phase. However, the
technical and commercial interrelationships and competitive
dynamics between the proposed
standards are complex to say the
least, creating a lack of clarity over
future trends. Largely as a result, the
market is not mature enough for any
of the attempts at interoperable
standards to take much share as yet.
Proprietary technologies – especially
well-integrated vertical offerings
such as iPod/iTunes and the coming
Microsoft Zune – may provide a
better user experience for some time
to come.
How to Compete with “Free” 9
The DRM-enabled entertainment content value chain
Content
Creators
DRM
Technology
Content
Distribution
Content
Consumption
Profitability challenges
Overall – one way to express the endto-end DRM-enabled value chain is
as above.
1
Content Creators include Record Labels and Movie
Studios. DRM Technology companies include for-profit
consortia, standards bodies, and other DRM IP rights
holders who monetize their IP with DRM royalties.
10 Accenture Media & Entertainment
One significant conclusion from our
research is that both the content
creators1 segment and the DRM
Technology segment may be seeking
to extract a larger amount of revenue
and profit from the value chain than
it appears to be capable of viably
paying them. This appears to have had
a detrimental effect on the acceleration
of market penetration and consumer
adoption, and is making the market
less fertile for new entrants. The
primary implication here is that if
businesses based upon DRM-enabled
content distribution cannot profit,
then the only truly viable entrants are
going to be those who make profits in
other ways. Apple, for instance, with
the iPod, and perhaps Microsoft’s Zune,
driving the content business with
profits from their playback devices
and complementary technologies.
An interesting secondary implication
of this ecosystem balance is that it
seems businesses such as Apple and
Microsoft are best suited for the lowor-no profit economics of today’s
DRM-enabled content market. They
subsequently drive their content
businesses into a sufficient market
penetration and consumer brand
loyalty “tipping point” – they may
well have the power to dictate better
terms upstream – lowering content
costs and decreasing license usage
strictures. This will lead to a better
consumer experience, sooner, and
will create a market that then is ripe
for other, direct-profit-oriented
content businesses. We believe this
is one possible expedited path to
market maturity.
It isn’t just cost per unit of content
that makes the DRM-enabled content
business a low profit endeavor. For
many entrants, the cost of DRM also
further reduces profit. Not for Apple –
because their DRM has no outbound
royalties. For entrants who are not
A meme is "a unit of cultural transmission, or a unit of
imitation”. Examples of memes are popular tunes, ideas,
catch-phrases, and fashions – for example, the way
people around the world took to wearing baseball
caps backwards is a meme. And overtly using an iPod –
and displaying the trademark white headphones –
has become a powerful meme as well.
Apple… Sun’s DReaM may be a good
choice, as it is royalty free, but it has
yet to be in significant use, and
supports ultra-simple use cases that
may fall outside the upstream content
owner’s contract terms around DRMprotected use cases. Microsoft’s DRM
is free of fees, but requires licensing
of other Microsoft components. Most
other DRM is subject to fees that can
be significant. For example, any DRM
licensed from Intertrust, or any DRM
that adheres to the Coral, Marlin, or
OMA standards has a cost. Sometimes
fees are based on sales volumes,
sometimes on number of subscribers…
and sometimes – as in the Intertrust
suit of Microsoft – DRM IP holders
pursue hundreds of millions of dollars
in IP damages. (Microsoft paid
US$440 million to Intertrust but has
not passed these costs on to their
DRM customers as DRM fees.) We
believe the fear of being sued for
infringement may further slow entry
into this market… and may make it
less attractive to enter in general.
Win or lose, the added legal and time
costs related to appropriate, cautious
IP legal diligence to avoid being sued
can exacerbate the profitability
challenges we’ve discussed.
Usability and accessibility:
the keys for consumers
Let’s consider the question of what
experience consumers are actually
seeking. The answer is that they want
two things. One is simplicity; people
can be overwhelmed by too much
choice. The other is that they like
things that just work without having
to know what’s happening under the
hood: they don’t like to be frustrated
or confused by technology.
A product or service that delivers
simplicity and usability – and whose
marketing and design cause it to be
adopted as a meme (see definition
above) – can get away with charging
a remarkably big price premium. That
“cultural high value” patina can cause
it to compete on terms other than
price. If you fill an 80 gigabyte player
with content from Napster To Go,
you get 12,000 songs for US$14.99,
and two million to choose from.
Per month, that is 1/10th of a penny
per song for the 12,000 songs in
your pocket. To fill that same player
in iTunes would cost close to
US$12,000.00. Napster To Go clearly
offers much lower cost per song and
better value… but iTunes has sold
2,000,000,000 songs to date, orders
of magnitude larger volumes than
all of the other competing music
services including Napster To Go.
The problem faced by companies
like Napster in this market is that
somehow, perhaps through less
persuasive marketing or perhaps
through usability issues, their product
has not become associated with a
popular meme. People understand
iTunes – 99 cent per song pricing –
but they don’t intuitively understand
DRM subscription models, and people
just can’t visualize two million of
anything. So far, the iPod/iTunes
meme seems to be winning.
How to Compete with “Free” 11
“Our core initial strategy on the store was that if you want
to stop piracy, the way to stop it is by competing with it,
by offering a better product at a fair price. In essence,
we would make a deal with people. If they would pay a
fair price, we would give them a better product and they
would stop being pirates. And it worked.”
Steve Jobs, Chief Executive Officer, Apple (Newsweek interview with Steven Levy,
October 2006)
Given the type of simple, seamless
user experience provided by the iPod,
combined with a quarter of a billion
dollars spent on marketing, it has
become a pervasive meme. iTunes
customers are almost universally
satisfied, tell their friends, and remain
loyal. This memetic consumer buzz
has worked well for Apple, in addition
to almost half a billion they have
spent on marketing these products.
But firstly, we are at an early stage in
the maturity curve – so proprietary is
“in”. And secondly, the pervasive
success of iTunes has limited relevance
as a business model to anyone who
isn’t Apple – because there’s no profit
in songs at 99 cents. Apple’s primary
revenue driver has been the sale of
iPod hardware, and the content
revenue seems to be incidental by
comparison. Also, as we have already
noted, the vast majority of content on
iPod devices today is illicit.
Still, we believe this serves as a very
powerful proof point that the right
product, with the right marketing,
12 Accenture Media & Entertainment
and the right user experience, can
achieve dominance and trigger
pervasive, memetic cultural change.
And we believe that is a necessity
in this competitive, profit-sparse
marketplace.
However, there is a lesson here for
DRM-fueled models. The primary
challenge most of these models face
is that they offer a cumbersome,
intrusive user experience. iTunes less
so than all of the others. To win in
the marketplace, a product must meet
or exceed the user’s expectation.
Everyone we have spoken to has
confirmed our belief that consumers
are at least as attracted to stealing
content due to the ease of P2P access
rather than simply because it is free.
Most consumers don’t care about the
ethical issues, but steal content firstly
because it is easy to do so, and
secondly because it is free – in that
order. So in a sense, an appropriately
transparent DRM business model may
help to keep the “don’t-care
consumer” honest – and the belief
“Most consumers… steal content firstly because it’s easy
to do so, and secondly because it’s free – in that order.”
C-Level music executive
is that this is the majority of
consumers. The challenge, as we see
it, is that the transparency and ease
of the user experience is directly
related to the contract terms the
distribution company has agreed to
with the upstream content owners.
Those contracts define the required
level of DRM intrusiveness. If Yahoo
Music’s DRM forces expiration on
20 GB of content in the pocket of a
traveling user on a specific date with
no grace period – inconveniencing
that user and making them angry –
it likely did so because the record
labels required it.
People tend to blame DRM
immaturity, or lack of interoperability
for lower levels of customer traction
and satisfaction… but we believe the
single greatest challenge is that the
upstream usage terms in content
contracts require that DRM behave
in an overt manner. Why isn’t Apple’s
DRM this intrusive? Because Apple,
driven by Steve Jobs, limited their
DRM to a minimum set of simple
functions, and then negotiated less
restrictive usage terms for those
simple functions.
The profile of most piracy presents us
with an opportunity; the fact that the
majority of consumers don’t care
means they can be converted into
paying customers – if they can be
provided with a user experience that
is easier, cooler and memetic.
However, it is important not to anger
this “don’t-care” class along the way,
because they can be strongly
converted to the dark side too – the
memetic behavior of using and
distributing illicit content – which
would add to the industry’s biggest
adversarial force. The risk is that
heavy-handed enforcement
(restrictive DRM, threats, lawsuits)
could create the kind of situation
seen on highways in the US, where
drivers will flash their lights at
complete strangers (also a meme)
because the police are seen as the
common enemy. There is a metaphor
here for allowing certain usage, copy
and sharing flexibility even if the
industry doesn’t want to. Because
the backlash may be more expensive
than today’s piracy rates are.
Avoiding the
protection backlash
This risk casts an interesting light on
the traditional idea that the way to
keep people honest is by putting up
barriers and instilling fear of
consequences – whether through
technology or legal action. Both of
these may equally bring major
drawbacks over time.
Outright copy protection technology
has a checkered history – seen not
least with the cracking of the CSS
technique, which has left the DVD
format open to arbitrary copying for
years. The new managed copy and
device integrity security technologies
that are key components of standards
like HD-DVD and Blu-ray are also
clearly vulnerable to breach despite
How to Compete with “Free” 13
“These devices are just repositories for stolen music, and
they all know it. So it’s time to get paid for it.”
Doug Morris, Chairman and Chief Executive Officer, Universal Music Group
their detailed security design; they
were cracked in January 2007. We
expect they will issue a security
update but we expect the update to
be cracked quite quickly – weeks or
months after issue at most. Our
experience is that once cracked,
subsequent cracks happen faster and
faster as the hackers gain more
familiarity with the product’s security
design thought process.
This is nothing more than an arms
race that nobody will win, and that
will not create a consumer buzz,
loyalty, or turn increased legitimate
content consumption into a new
behavioral meme. Also, companies
face generating the type of consumer
backlash mentioned above, by
simultaneously withdrawing people’s
long-held ability to copy content and
taking transgressors to court or
stripping their discs and players of
their ability to play content at all.
14 Accenture Media & Entertainment
History shows that when a
corporation takes legal action, its own
size may actually weigh against it –
often resulting in its being cast as a
“bully” and losing public goodwill. The
RIAA case against a 16-year-old girl
in the US several years ago had just
such a negative effect. Beyond
individual legal actions, content
creators in California recently lobbied
for legislative change and backed
Senate Bill 2644, the Perform Act of
2006, sponsored by Senator Feinstein.
This bill takes aim at the satellite
radio companies XM and Sirius for
having a time-shifting recording
capability in their playback devices.
This is an aggressive legal attempt to
reduce the fair-use flexibility of
certain content devices.
New business models based upon
DRM and ubiquitous distribution of
vast amounts of content will be a
better hedge against piracy and a
better arbiter of continued industry
growth than resorting to technology
or the law. At the same time that the
US legal system is being used to
support content creators’ IP concerns,
their colleagues in Europe are starting
to give content away free on services
like SpiralFrog. In France, Sweden and
most recently Norway, a few years of
heavy legal enforcement against
downloaders resulted in increased
piracy and in Sweden the rise of a
pro-piracy political party, which got
a measurable percentage of the vote
in the last election.
Our position on legislative change
and civil court action is that content
creators may provoke significant
backlash that may have negative
financial consequences in the long
term. It doesn’t actually matter much
that the content industry may be
entirely in the right from a legal
perspective. Winning hearts and
minds, consumer passion, loyalty and
wallet-share, is far more a marketing
challenge than the domain of legal
and enforcement experts.
“‘You can't compete with free’ is one of Jack Valenti's
favorite sound-bites, but he's just not right… Cable TV
competes with free TV and CDs compete with free radio…
the entertainment industry may fumble the chance
to turn the tens of millions of downloaders using those
networks into profitable customers...”
Sam Yagan, President, MetaMachine Inc (Variety 2004)
Litigation seems to be a recurring
theme in this value chain; we believe
the largest so far to be the US$440
million patent infringement lawsuit
Intertrust filed and won against
Microsoft, and most recently, there
have been two different pending
lawsuits against Apple and other
high-profile companies. One for
patent infringement (filed against
Google and Napster as well), filed by
a company that has so far failed to
achieve financial success in the DRM
enabled value chain. The other suit
against Apple was for a lack of
interoperability between iTunes music
and non-Apple playback devices.
Clearly each company is doing what
it feels best for its owners and
stockholders – but we also believe
such suits, won, settled, or lost –
cannot help the overall value chain
thrive, and may actually serve to
hinder its growth.
Consider lowering your
unit prices
While the majority of executives we
spoke with do not believe price is the
primary motivator in most cases of
content theft, our view is that lower
prices for content would significantly
increase adoption and thereby
proportionately reduce piracy
percentages. Also the increasing
ubiquity of services and access
methods due to increased adoption
should make lawful means as easy to
find and use as unlawful ones, and
further drive down piracy.
increased market share and revenue
at lower unit prices. In a well known
example from the recent past Real’s
Rhapsody music service lowered
prices from 99 cents per song to
49 cents per song, and saw a
600 percent increase in download
volume. They were unfortunately not
supported by the record labels in
sustaining this price for very long –
and had to raise prices back to the
99 cent per song standard. This
occurred despite a 600 percent sales
unit volume increase and commensurate
300 percent revenue increase during
the 49 cent timeframe.
This vision of ubiquity ultimately
leads to broad adoption – potentially
orders of magnitudes more
consumption of content, at lower unit
prices, because the concept of vastly
increased consumption almost always
carries the promise of lower per-unit
cost to the consumer – a function of
commoditization. Yet the content
creation industry has visibly resisted
steps that may lead to significant
Clearly businesses are obligated to
maximize returns for their owners –
therefore in the Real Rhapsody case
above, the record labels must have
had good business reasons for not
supporting the lower prices despite
significant revenue and volume
increases. They may have had
outstanding legacy contracts
themselves that disallowed lowering
their prices for content – their legacy
How to Compete with “Free” 15
"We're trying to compete with piracy, we're trying to pull
people away from piracy and say, 'You can buy [content]
legally for a fair price…’ So if they [content owners] want to
raise the prices it just means they're getting a little greedy."
Steve Jobs, Chief Executive Officer, Apple (MacObserver 2005)
artist payment obligations may be too
high per unit sold. Or they may
believe there is a brighter economic
future for them in emphasizing a
higher unit price, potentially
augmented by other present and
future content delivery means. If the
content owners can restore the
security of HD-DVD and Blu-ray
cracked in January 2007, these next
generation physical media options,
despite hypothetically threatening
DRM-enabled models that depend on
lower prices and higher volumes over
time, may be a sensible strategy for
content creators. Are they then
effectively playing both sides of the
evolving competitive landscape at
once? Perhaps, as the concept of
hedging strategic bets by adopting a
portfolio of parallel and serial options
is a valid one.
16 Accenture Media & Entertainment
The shape of the market:
current value chain
dynamics
Not surprisingly, we found that the
content creation companies,
especially the movie studios, have a
great deal of power in the current
supply chain. They would have even
more power today if the DVD format’s
CSS (Content Scrambling System)
had not been cracked by “De-CSS” –
and they wish to undo that breach.
Despite De-CSS, movie studio
revenues have not spiraled downward;
on the contrary, they have been
trending steadily upwards globally.
Video content businesses were hoping
that the new disc formats such as
HD-DVD and Blu-ray would offer
much stronger, renewable security
than the DVD’s CSS system did. Their
high hopes were dealt a severe blow
when it was reported cracked in early
2007. Presciently, the record labels
have been more cautious about these
formats and many of them have
adopted a “wait and see” strategy to
see how secure and popular they are.
Meantime, today’s reality is that
De-CSS has breached the security of
the DVD format. This has driven a
more flexible attitude towards DRMbased business models. This is partly
because nearly all of these business
models are more secure than a CSS
protected DVD disc. Our research
suggests there may be a possibility
that movie studios and other video
content creation companies may wish
to reduce this flexibility when the
HD-DVD and/or Blu-ray formats start
to ship in volume, for example – in
order to pursue strategic managed
copy business models.
These models may compete with, or
render redundant, the DRM-enabled
business models of today, from iTunes
to Vongo, and may also be used to
threaten disc-based media rental models
such as BlockBuster and NetFlix. The
content creators will soon create
managed copy services – either their
"DRM is actually working [for the internet DRM-enabled
supply chain], but the protection used on DVDs clearly is not."
Curt Marvis, Chief Executive Officer, CinemaNow
own infrastructure, someone else’s
“White Label” infrastructure, or
perhaps today’s DRM-enabled services
such as iTunes and Vongo will assume
some or all of the functions of
managed copy.
The release timeline for content
progressing from theatrical release,
DVD release, DRM-enabled On-Demand
and web release (iTunes, Vongo, etc),
Linear-Paid-Services release (HBO,
Starz, etc), and Free-To-Air release
(NBC, ABC, CBS, BBC, etc) will change
over time – modified as contracts
come up for renewal – and value may
be retained in the higher-margin
release phases for longer periods of
time, and On-Demand and Paid-Linear
companies will likely have to wait
longer for popular titles as the content
creators maximize their revenues and
profits via managed copy.
We believe the process of renewing
the security of Blu-ray and HD-DVD
via AACS will continue and there will
be releases that patch these security
holes. While we cannot say for how
long, there is a chance they will
regain security and maintain it. If
they continue to sustain 18 months of
security per release they will have
accomplished their goal of locking
down the system. They can also
shorten the cycle to 12 months or less
(at greater cost of course) if they
wish. There is probably a development
cycle time they cannot fall below –
perhaps four months. In the end if the
amount of time it takes to crack the
security is longer than their shortest
development cycle, they win the arms
race. Their opponents, the hackers,
have time and very low development
costs. We cannot predict who will win.
Therefore for now, our findings indicate
that a safe strategic approach is to
strive for a balance between all of
these strategies – HD-DVD and
Blu-ray business strategies, disc rental
strategies, and strategies that do not
hinge on hard media at all.
At the time of this writing, major
studios were defining technical
standards for DRM that call for
Windows Media, and their customers
were implementing it, even though it
is made vulnerable by tools like
FairUse4WM.
Meantime, organizations intent on
becoming high performers in this
space have to make DRM choices, and
have to consider the challenges of
what we’re calling “multiplicity” in
the DRM space. We recommend
diversifying and supporting a portfolio
of DRM methods to match the right
mix of target platforms, when and
where it makes economic sense.
How to Compete with “Free” 17
Our ten-year projection for the industry
Based on our findings and insights
from this study, we have achieved a
consensus of opinion on the future of
DRM over a ten-year horizon. Within
that timeframe, our findings indicate
that interoperability can become a
reality and consumers can experience
the benefits of true DRM
commoditization, with most content
working on most devices. Within far
less time – maybe five years – some
degree of interoperability may allow
selected devices to interchange
content. This will be good for
everyone; most of the leading players
we have spoken with believe that
DRM-enabled business models can
and will boost content revenues, and
will also increase the ratio of
legitimate content in play to
illegitimate content in play globally.
The DRM-driven business models that
ultimately prevail will need to have
some or all of the following
attributes. They will have to:
• Mask the current lack of
interoperability as much as possible
18 Accenture Media & Entertainment
Be simple and flawless to use – easier,
more fun, more reliable, more flexible,
and more value added than using
P2P networks to get stolen content
• Be ubiquitously available and very
fairly priced
• Have vast amounts of great content
• Have superior search and discovery
capabilities
• Be very high performance so content
flows quickly to the end-point
• Be perceived as cool, even if it costs
hundreds of millions of marketing
dollars – or more – to create the
right perception, since the
perception drives results
• In time, in order to truly compete
with “free”, they may need to feel
more like they are free, or so close
to free that nobody will care – this
may require that the content
creators and/or the organizations
who hold DRM IP alter their
expectations of revenue and profit
per unit of content, in favor of the
possibility of winning orders of
magnitude larger collections of
customers globally
•
“Most of the leading players we have spoken with believe
that DRM-enabled business models can and will boost
content revenues…”
Enable peer-to-peer distribution of
“free” content with “lightweight 2”
DRM. DRM is used to track usage,
measure popularity of content and
provide other CRM data
• Ensure peer-to-peer distribution of
“free” content with embedded
advertising locked into the content
with “lightweight” DRM where DRM
is used as above with advertising
locked in
• Allow for preview or limited use
with “lightweight” DRM and full
access for a fee.
•
Ultimately, our research and insights
show that DRM provides the potential
to instrument the far end of the value
chain in ways that were impossible in
the past, and will evolve to provide
consumption data at finer granularity
and faster than any historic sales
process ever could. Even in models
that don’t contractually require DRM
protection, we think the value add of
lightweight DRM to track actual
consumption is a powerful economic
lever. Imagine a world in which you
could download music for free with
no DRM. How would anyone ever
know who was “number one” that
week? The record label may know
what you downloaded – thousands of
free songs through your super-fast
broadband link – but without DRM
they might never know which ones
you listened to.
We also believe DRM has high-value
potential to be connected to state-ofthe-art Customer Relationship
Management (CRM) systems and drive
more responsive, customer-oriented
businesses that can adapt and serve
their customers in exciting and
innovative ways. This in turn can drive
a revolutionary change that
dramatically increases adoption and
value. It is a revolution we expect to
see within the next decade.
2
Definition of “lightweight DRM”. Standard
commercial DRM such as Mircosoft’s applied in
lightweight business rules allowing maximum usage
with limited restrictions (e.g. geographic) as needed.
How to Compete with “Free” 19
Postscript
The DRM-enabled value chain has the
potential to ubiquitously deliver huge
amounts of content at fair prices to
every internet-connected person on
earth. The visionary companies that
created this value chain intended it to
some day be the primary distribution
method for content. The creators of
content may not necessarily share
that vision in full – they seem to be
leaning towards the current price
point for content even if that limits
the success of DRM-enabled methods.
But we know that economic incentives
drive the decisions of public companies,
and so we know that if the DRMenabled value chain captures market
dominance by means of great products
and pervasive, memetic adoption, it
can become the primary delivery means.
What will the future bring for the
DRM-enabled value chain? The road
is uphill from here, and the creators
and owners of content may have
other preferred outcomes in mind.
That decision ultimately depends on
the economics.
20 Accenture Media & Entertainment
We now know some of the
ingredients required for market
dominance, and we know that such
dominance is the key to attaining
that DRM-enabled future vision. A
quote from the TriStar Pictures movie
Terminator 2: Judgement Day may
say it best – “The future is not set.
There is no fate but what we make.”
This paper is synthesized from a more
detailed report, “How to Compete
with ‘Free’: Digital Rights Management
Point of View”. The full report can be
downloaded from
www.accenture.com/drm.
The study on which this report is
based was conducted by specialists
within Accenture’s Media &
Entertainment, Security and IPTV
practices. Our senior industry and
subject matter experts have
undertaken Digital Content-related
design, build, and run work
for fifteen years.
For more information about this
report send an email to
[email protected]
or contact the author:
Rick LeVine,
Rights Management Global Lead,
Accenture
[email protected]
Copyright © 2007 Accenture
All rights reserved.
Accenture, its logo and
High Performance Delivered
are trademarks of Accenture.
About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company. Committed
to delivering innovation, Accenture
collaborates with its clients to help
them become high-performance
businesses and governments.
With deep industry and business
process expertise, broad global
resources and a proven track record,
Accenture can mobilize the right
people, skills and technologies to help
clients improve their performance.
With approximately 146,000 people in
49 countries, the company generated
net revenues of US$16.65 billion for
the fiscal year ended Aug. 31, 2006.
Its home page is www.accenture.com.
Media & Entertainment
Accenture helps entertainment,
broadcast, publishing, printing and
portal companies adapt to the realities
of the digital evolution and capitalize
on new opportunities. More than
1,000 dedicated professionals provide
media and entertainment companies
with a distinctive combination of
business and technology consulting,
systems integration and outsourcing
capabilities. Accenture has worked
with 19 of the 20 largest media
and entertainment companies in
the world.