Apple CEO Encourages Music Companies To Move Away From DRM

The former Boy Wonder is at it again. In an open letter titled "Thoughts On Music," dated, February 6, Steve Jobs, the CEO of Apple Inc., encourages the big four record companies to allow their music to be sold free of digital rights management (DRM), and he states that Apple would embrace such a move "wholeheartedly." Interesting news from an always interesting man, and once again, he is ready to try to turn the world upside-down.

Mr. Jobs notes that with the tremendous success of Apple's iPod music player and iTunes online music store, Apple has been asked by some people to open the DRM system that Apple states that it uses to protect its music against theft, such that music purchased from iTunes could be played on digital devices purchased from other companies, and protected music purchased from other online music stores could be played on iPods.

Mr. Jobs deflects criticism of Apple by providing some background, and in so doing, he takes care to point out that Apple does not own the music it sells on its online iTunes Store. Because Apple does not own or control any music itself, Mr. Jobs explains that it must license the rights to distribute music from others, primarily the big four music companies - - Universal, Sony BMG, Warner and EMI. According to Mr. Jobs, these four companies control the distribution of over 70% of the world's music.

As further background, Mr. Jobs goes on to explain that when Apple approached these companies to license and distribute their music online, they required Apple to protect their music from being illegally copied. The solution arrived at was to create a DRM system, which, as described Mr. Jobs, envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices.

Apple's DRM system is called FairPlay, as noted by Mr. Jobs. And while Apple has suffered some breaches in FairPlay, Mr. Jobs states that Apple has been able successfully to repair them through the updating of software. He proclaims in self-serving fashion that "so far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music."

Without further adieu, Mr. Jobs presents what he perceives to be the three alternatives for the future.

Mr. Jobs states that the first alternative is to continue on the current course, with each manufacturer competing aggressively and using their own proprietary systems for selling, playing and protecting music. Mr. Job notes that some people have argued that once a consumer purchases music from one of the proprietary music stores, they are forever locked into only using music players from that one company; and, if they buy a specific player, they are locked into buying music only from that company's music store. Mr. Jobs then questions whether these notions are true.

According to his data, on average, 22 songs have been purchased from the iTunes store for each iPod ever sold. Given that the most popular iPod holds 1,000 songs and that the average iPod is nearly full, under 3% of the music on the average iPod is purchased from the iTunes store and protected with a DRM. Thus, according to Mr. Jobs, the remaining 97% of the music is unprotected and playable on any player that can play the open formats.

Mr. Jobs concludes with respect to this first alternative that it is difficult to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future, and that because 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are not locked into the iTunes store to acquire their music. These numbers on their own are fairly convincing, although it might be more useful to ascertain empirically the actual loyalty of consumers to particular devices, software and brands.

The second alternative, as stated by Mr. Jobs, is for Apple to license its FairPlay DRM technology to current and future competitors with the goal of "achieving interoperability between different company's players and music stores." While on its face this may seem positive in terms offering choice, Mr. Jobs points out what he considers to be a serious problem.

Namely, licensing a DRM involves disclosing secrets to people in many companies, and inevitably such secrets are leaked. And with the Internet, leaks can be spread around the world in the blink of an eye. Such leaks, according to Mr. Jobs, ultimately can lead to free downloads of software programs that disable DRM protection. As a result, Mr. Jobs states that Apple has concluded that if it licenses FairPlay to others, it cannot guarantee to protect the music it licenses from the big four music companies. While this may be true, it is possible that music companies might as a matter of contract be willing to accept less than a full guarantee from Apple.

The third alternative put forward by Mr. Jobs is to abolish DRMs entirely. He asks us to imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, Mr. Jobs prognosticates that any player could play music purchased from any store, and any store could sell music which is playable on all players.

Mr. Job states that "this is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat." He goes on to say that "if the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store" and "every iPod ever made will play this DRM-free music."

Mr. Jobs supports this view by underscoring the fact that DRMs truly have not worked, and indeed may never work, to stop music piracy. Driving the point home, he describes that while the big four music companies require that all their music sold online be protected with DRMs, they continue to sell billions of CDs annually that contain completely unprotected music. Good point, and he is correct that CDs can be easily uploaded to the Internet and then downloaded and played on computers and players.

Driving a stake further into the heart of any counter-argument, Mr. Jobs notes that worldwide in 2006, under 2 billion DRM-protected songs were sold by online stores, whereas more than 20 billion songs were sold DRM-free and unprotected on CDs by the music companies.

Because the music companies sell over 90 percent of their music free of DRM, Mr. Jobs believes that they truly do not benefit by selling the remaining small percentage of their music with a DRM system.

Perhaps as part of fending off any criticism of Apple, Mr. Jobs suggests that "those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free." Convincing the music companies "to license their music to Apple and others DRM-free will create a truly interoperable music marketplace," and "Apple will embrace this wholeheartedly," says Mr. Jobs.

It could be that Mr. Jobs feels safe in proposing a DRM-free world, because he suspects that the music companies will not go for this proposal, and at the end of the day, he will might at least succeed in taking the focus off of Apple when it comes to attacks on DRM. Nevertheless, Mr. Jobs certainly has joined the issue and no doubt the debate about whether the music companies should dispense with DRMs will unfold. As always, he is a lightening rod of ideas, and he does not shy away from controversy. If nothing else, Mr. Jobs' ideas should resonate with the anti-DRM community and could serve to apply pressure on the music companies.

 

Eric Sinrod is a partner in the San Francisco office of Duane Morris LLP where he focuses on litigation matters of various types, including information technology and intellectual property disputes. His Web site is http://www.sinrodlaw.com and he can be reached at ejsinrod@duanemorris.com. To receive a weekly email link to Mr. Sinrod's columns, please send an email to him with Subscribe in the Subject line.

This column is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this column are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.