Apple-EMI deal dooms WMA? Huh?

Since that last post, I’ve seen a couple other articles suggesting that Apple’s decision to offer DRM-less tracks in the AAC format is going to strike the death blow for Microsoft’s Windows Media Audio (WMA) format.

Everybody loves a “Microsoft is losing” headline, but these articles are just stupid. Why?

1. If device makers had thought they could steal iPod users by supporting AAC on their devices, they would and should have done so long ago. The huge majority of AAC files on people’s computers are unprotected files from CDs ripped in iTunes, not from the iTunes Store. (This is why the Zune natively supports AAC.) Removing DRM from a miniscule percentage of the overall number of AAC tracks out there doesn’t change the equation a bit. (In fact, if I were a player manufacturer, I’d support as many formats as I could afford to license so the user would never have to think about formats at all. Isn’t the idea maximum ease of use?)
2. These writers seem to assume that the Apple-EMI deal will remain exclusive. I doubt that’s the case. EMI wants to sell tracks as broadly as possible, even to the tiny percentage of Zune users out there. Assuming they believe removing DRM will sell more tracks, why not allow Microsoft to sell DRM-free WMA files on the Zune Marketplace? And allow Napster, and Yahoo Music, and whomever else to sell DRM-free files in whatever format they choose. These folks would be happy to sell DRM-less tracks—like nearly every other digital media player, they support DRM because they have to, not because they want to. It’s costly to implement, alienates consumers, closes off interesting scenarios that might make users more prone to buy new digital media products, and so on.
3. The Business Week writer talks about Microsoft’s “expensive licensing terms” for WMA. But AAC comes with licensing terms as well! And they’re more expensive for device makers than WMA (at least according to Paul Thurott).

News flash: Apple chose to make this deal for AAC because they’ve already licensed that format, and the iTunes infrastructure is probably built to deliver files in that format, and it’s a much more efficient (filesize for quality) format than their other option, MP3. Which, by the way, comes with licensing fees as well.

The undercutting of the PlaysForSure music store partners probably did more to hurt WMA than this deal will. And Microsoft doesn’t care because those stores weren’t selling many songs anyway, and Microsoft has plenty of other ways to push the Windows Media format—native support in every PC and Windows Mobile device shipped, Xbox Live Marketplace (for video), MSN Video, Zune Marketplace and so on.

But everybody loves a “Microsoft’s doomed” headline.

EMI offers DRM-less tracks through iTunes

Both Jobs and EMI have been telegraphing this move: for $1.29, you can now get all songs in EMI’s digital download catalog as 256kbps AAC files with–ta-da!–no DRM. And while Lefsetz is pissed that that they raised the price for these tracks, I like it as the first small step away from the record industry’s self-defeating efforts to control user behavior with inept and unfriendly technology.

Wired columnist Eliot van Buskirk, anxious for any headline that portrays Microsoft as loser, seems to miss an important point: the Zune natively plays AAC files. That’s right–along with going into direct competition with the players and stores that have long supported Windows Media Audio (WMA), Microsoft went and supported the file format favored by its number-one competitor. Sure, Microsoft would have liked to establish WMA as the de facto standard, but it’s basically acknowledged that particular war is over, and it’s lost. Microsoft is not even pushing WMA for telephone handsets anymore–instead, it’s gone and built a generalized DRM system (or “content access” technology as they call it) and will let the carriers apply it to any file format they want–including AAC.

In other words, Microsoft just hopes you buy a new PC to store all your digital media files. They’re not as concerned as they once were about what format those files are in.

The suits talk DRM

Two interesting posts from AppScout about panel discussions on DRM at the Digital Music Forum in New York City last month. In the first, a group of execs from Sony BMG, Real/Rhapsody, and several small online music distributors argue that DRM is necessary, that Steve Jobs was blowing smoke, and that if Pixar/Disney started selling its content without DRM, everybody would sell the stock on the presumption that piracy would render its business unsustainable. Fortunately, one guy from digital distributor The Orchard pointed out that DRM doesn’t work to prevent piracy anyway, but only prevents average consumers from doing things they might want to do, such as transfer an iTunes download to a non-iPod device.

The second discussion sounded a bit more interesting, with some industry folks admitting that eliminating DRM would actually benefit them financially, and a long discussion of my favorite topic, the celestial jukebox.

Squrting in the wild

Newsweek correspondent and longtime tech journalist Steven Levy spoke at the University Book Store the other night, and because he’d promised to have his Zune there, I took the opportunity to “squirt” him one of my songs. Our brief interaction highlighted the two big flaws with Zune’s wireless sharing feature:

1. The “first man with a telephone problem”–if nobody else has a Zune, who are you going to trade songs with? I’ve been to Microsoft a few times since I got my player, and I always bring it with me and turn on the wireless feature. I’ve never encountered another Zune with the wireless turned on. In fact, this was the first time I’ve ever shared a song wirelessly (outside of the Zune Lounge at CES, which was totally contrived–set up by Microsoft specifically to get people to share).

2. The way Zune applies the 3 plays, 3 days restrictions to all music–even music that the Zuneholder owns the rights to, as was the case with this song. (OK, actually I didn’t write the song, our guitarist did, but I wrote the bass part and played on this recording…and in an unsigned obscure instrumental band it’s not exactly like there’s a lot of contention over who owns what.) This particularly sucks because, as DRM systems go, the Windows Media DRM technology that Zune uses is very flexible–it would have been entirely possible to allow end-users to set their own DRM restrictions on unprotected music. Of course, the record companies wouldn’t allow that because the assumption is that most music on a Zune is ripped from a mainstream CD.

I still think Zune has a chance if Microsoft rethinks the wireless connectivity and lets people do some interesting things with it.

DRM deathwatch, continued

Steve Jobs has always struck me as a Zen-styled capitalist charlatan, kind of like Jerry Brown with money. Nonetheless, he has earned my enduring respect with this open letter to the music industry, in which he suggests that DRM-protected music files should be abolished. The nut: “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 haven’t worked, and may never work, to halt music piracy.”

Shows a lot of confidence in the iPod as well–DRM lock-in is one frequently cited reason why users won’t switch. I guess Apple created FairPlay simply because they didn’t want to license another DRM system. For example, using Windows Media DRM would have required them to sell songs in the Windows Media Format, which means the iPod would have to be able to play that format, which means Apple would have had to pay Microsoft royalties on every iPod sold (up to a cap of $1m per year, which is peanuts now but probably seemed like a lot at the time).

Meanwhile, a blogger at 10 layers has looked at current earnings growth and extrapolated into a future where Apple’s revenue surpasses Microsoft’s. I say it won’t happen–it would require iPod growth to continue at its current clip (impossible) or for Apple to have one or more huge hit products (very unlikely) or for Microsoft to stop growing completely (very unlikely). Still, it’s striking that Apple’s revenue is 50% of Microsoft’s today. Unimaginable 10 years ago.

CES vs Jobs

Attended CES this year for work, and was one of those who felt like they went to the wrong party. While Apple was busy introducing what will inevitably be the most-talked-about product of the year (albeit vaporware at this point–they never used to do that!), Microsoft was busy acknowledging that the copy-restriction capabilities in Vista will in fact mean that you’ll probably have to buy new hardware–including an HDCP-compliant monitor–to play most forms of high-def video on a Vista PC.

I’m not sure that Peter Gutmann is completely right about Vista’s anticopying provisions ruining the entire computer industry, but Microsoft’s assurances to me in 2005–“oh, many content owners won’t even use these copy-protection provisions” (so then why did you build them in?) — are appearing more and more like desperate spin (formerly known as “bullshit.”) So Vista as home entertainment hub could be dead on arrival. Why buy a new $3,000 system when you can add individual, locked-down components (DVD player, HD cable set top box) to your existing system? Are benefits like being able to track your fantasy football players in real time while you watch the games and highlights really worth swapping out your whole system? (Of course, it won’t make a bit of difference to sales–every new consumer PC will come with Vista Home Premium whether you choose to use all the features in it or not.)

That said, Microsoft’s Home Server announcement was actually pretty interesting–automatic nightly backup, storage of all your digital media files, capacity only limited by the size of drives you add (HP’s hardware features four swappable drives, plus 4 USB connectors for additional drives), remote access via a URL (albeit tied into Windows Live Domains, which lets you register your own domain name via a third-party in Melbourne Australia, and was kludgey as hell when I tested it for Office Live), health monitoring of PCs on your network. They purposely left out firewall software, reasoning that you wouldn’t want to reconfigure your network, but simply add a storage device to it. They also left out security and auto updating, reasoning that a lot of people have laptops and want to be secure even when they’re not connected to the home network. Reasonable. ALso, it’s not a domain controller, which means you’ll still be using local accounts on each PC…essentially, it’s just a shared folder on a new box.

But the thing they haven’t announced yet, which will make it really attractive, is the price. Let’s just say cheaper than the cheapest PC. Priced more like a consumer electronics add-on.

Now, sure, as a friend pointed out to me, you can do similar things online. But most of those services have pretty low storage limits–25GB for the free version of MediaMax seemed to be the limit–and rely on you having a fast Internet connection. Personally, I’d rather rely on my home network.

The future of Zune?

One of the big knocks against Microsoft’s Zune player is that songs you beam to one another wirelessly expire after three days or three plays.

But now it appears like this is just the first step. A recent Microsoft Research paper proposes a new business model in which end-users are distributors. The idea is I could beam (“squirt” in Microsoftese) a song (or eventually video) to you and if you like it, you agree to buy it and the DRM goes away. Zune keeps track of every transaction and compensates the content owners after the fact. Most interesting, the seller gets a few MS Points as commission. This gets around the whole “DRM sucks” problem—instead of telling people not to share and relying on flawed technology to prevent it, they offer incentives to share. Apparently MS is getting patents in place and J Allard has talked about this publicly a few times.

Fantastic idea. Instead of trying to stop natural human behavior, capitalize on it. It’s certainly better than clutching the anchor as the ship goes down.

DRM finally dying?

As an analyst covering Microsoft’s consumer products, including Windows Media, I’m often called upon to talk about or comment on DRM–digital rights management. This misldeadingly named technology doesn’t give you “rights” to anything–it restricts what you can do with a product you’ve paid for. Most commonly, DRM is used to lock down digital downloads (such as songs on iTunes) so they can’t be played more than a certain number of times, or on a certain number of devices, or after a certain date. As I’ve complained to my boss, DRM is my least favorite subject because I can barely contain my contempt for it–it’s fundamentally flawed on two levels:

1. Technically. Even the folks who work on Windows Media DRM, who are trying to sell the technology to the recording industry, admit that DRM can never be more than a roadblock. As Cory Doctorow and many others have pointed out, that’s because DRM is trying to protect the user against himself! That is, the user is both the attacker (the person who’s not supposed to get the decrypted content) and the recipient (the person who is supposed to get the decrypted content). At some point, the user has to have some way of decrypting the content, and that paves the way for breaks. No wonder it took less than a week to break the copy-protection on Zune.

2. Economically. A CD, cassette, or LP record can be played on any gear. But DRM specifically restricts what you can do–it gives you less for the same price. The most notable example: iTunes songs cannot be played on any portable device other than an iPod; a model that Microsoft is following on Zune. This would make economic sense if there weren’t alternatives. But there are plenty of alternatives to DRM: rip a CD to MP3 and it will never be restricted from playback anywhere. Post the MP3 to a file sharing network, and the game is over.

So now that DRM is beginning to cripple the downloadable music industry, as shown by the collapsing revenues on Apple’s iTunes service, some folks within the record industry are finally acknowledging that DRM is a dead end. Instead, the concept of a blanket license is gaining credence, In this model, a few cents are added to the price of Internet service, digital media software, and digital media hardware, then shared with content owners to compensate them for use of their material. This is already done with blank CD-Rs and cassettes, and a similar method is used for collecting royalties on radio and other performances.

Eliminating DRM is also the first step toward the new mindset that’s necessary for the record industry to accept new business models, incuding the long-awaited “celestial jukebox,” which people have been demanding for years. But the record industry is too scared of losing control of the means of distribution–if everything’s seamless, their role as taste-arbiters and payola-payers is meaningless and no artist worth a damn will work with them.

Death to DRM, the sooner the better. It won’t be mourned.

DRM backlash

There’s not much more to say about the whole Sony DRM controversy, except that I’m glad Microsoft took a stand. I think the Digital Media Division at Microsoft been way too happy to help the record companies foist their idiotic DRM schemes down our throats, and they sure haven’t gotten much support in return. At least Microsoft’s Security team is willing to call this particular DRM technology what it is–a piece of poorly written and almost totally evil spyware that breaks Windows.

The best part of the whole incident is the fact the whole industry’s going to suffer from the backlash, which could cause them to reconsider their idiotic anti-customer strategy.

But probably not.