April 14, 2024

More on the Cato DRM Paper

I wrote yesterday about the new Cato Institute paper on the economics of peer-to-peer and anti-copying technology, which argues that everything will be okay in the online-music market because competition will force vendors to offer consumer-friendly products. I agree that a competitive market would have this effect. But how competitive is the market?

One of the more interesting sections of the Cato paper is about interoperability (pp. 8-9), or the ability of different DRM systems to work together. If a buy a file in one system, can I move it to another system? If two devices implement different DRM systems, can I transfer a file from one device to the other? If my DRM vendor goes out of business, do I lose access to my files?

The Cato paper says that DRM interoperability is good, and that progress is being made. I agree with the first part but I’m not so sure about the second. It’s not clear that we can rely on the DRM vendors to make their products interoperable – they have little incentive to help their customers switch to competitors’ products. Are there alternatives? Here’s the Cato paper:

Unilateral solutions may exist. In its present Harmony service, RealNetworks enables the compatibility of its RealPalyer Music Store tracks with both Apple’s iPod players and players compatible with Windows Media Audio (WMA). RealNetworks acomplished that by producing WMA files and integrating Windows Media Player on the user’s PC (both of which are permitted by Microsoft) and by reverse engineering Apple’s FairPlay DRM file format (which Apple may yet legally contest). In another potential solution, RapidSolution Software of Germany now offers software (called Tunebite) that allows users to re-record any file played on a PC by simple loopback through the PC’s audio card; songs are stored in an open format for later use. Parties differ as to whether the technology legally breaches access protection.

In other words, these products provide public benefits, but they might be illegal. One would expect, at this point, a policy discussion about why it might be wise to ensure that such products are legal. But that is not forthcoming. The authors just change the subject and talk about something else.

This flaw – extolling the virtues of competition, but failing to follow up by recommending pro-competition policies – seems to run throughout the otherwise excellent Cato paper. It makes sense to rely on market competition to blunt the potential downside of DRM. That strategy will only work if we adopt pro-competition policies, or at least reverse the anti-competition aspects of our current policy. Talking about competition is good; but having competition is much better.


  1. Bill R wrote: “Whether they are legal (e.g., hacks) or not (e.g., this week’s announcement by Nokia and Microsoft” – I like this sort of irony 😉 is it about antitrust?

    regarding the market: what was the value of the trademark mp3®. how many times that, will MS have to spend, to make “play for sure” this well recognized?

    MS tried to dilute the mp3 mark by making wimp come preconfigured to rip cds to wma, but most everybody with a little knowledge switched long since.

  2. Just a quick point on the MP3Tunes vs eMusic issue: eMusic is subscription only, rather than offering the ability to buy individual tracks.

    For someone like me, who tends to buy music in batches (i.e. I’ll get a half-dozen CD’s every six months or so, rather than getting a CD every month), eMusic doesn’t offer a very good value proposition, since it would require me to either change my purchasing habits or work around their subscription system (by periodically subscribing for a month at one of the higher tiers, grabbing a number of songs, then unsubscribing).

    MP3tunes, on the other hand, fits better with the way I acquire music. Hopefully, over time, those labels which distribute through eMusic will also distribute through MP3tunes, and expand their market to people like me that don’t like subcription services for music.

  3. Finkle and Einhorn, Einhorn and Finkle!

  4. Robert Young says

    Any debate about DRM is essentially a discussion about access to copyright (open vs. limited). And any critical look at whether the recording industry is competitive or not should begin there.

    I’d like to point you to a relevant blog debate that Michael Einhorn (one of the co-authors of the Cato paper) started a few months back. Fred Von Lohmann’s comments are of particular interest. It starts here http://www.digitalmusicnews.com/blog/102 and continues here http://www.digitalmusicnews.com/blog/103

  5. Competition only works when a level playing field is extant. Too often in the government/business realtionships conditions are allowed to develop where there is no level playing field and the cost of entry so high that the only real purpose of discussion is academic exercise.

    The problem with the current RIAA/MPAA copyright situations is that we have large, old, monied organizations which seek to hold back competition by making it illegal. This allows them to keep articifically high profit margins rather than change business models to the new reality. They will ultimately fail – but buying a few years is still enormously beneficial to their pocketbooks.

    From a practical point of view, we need a compromise that not only provides the creative artists compensation for their creative efforts (they are the only ones in the process that must be guaranteed revenue) but also transitions the industry to a model that will work with the new distribution methods and makes entry into the new industry format affordable to those with the ideas to thrive in the new environment.

  6. Bill R.,

    If helpful technologies are illegal, that’s a policy problem. Legalizing those technologies has to be a better approach than just hoping the developers won’t get sued. Should Apple have the power to stop Real from interoperating? I don’t think so.

    Regarding MP3Tunes vs. EMusic, I take your point. The introduction of MP3Tunes was really just a convenient news hook for me. The majors’ failure to license to EMusic may indicate that they have failed the competitiveness test already.

    Overall, I like your paper. You got the big thing — the importance of competition — right, which most commentators don’t. I just disagree about some of the details.

  7. Bill Rosenblatt says

    I think the point we made about DRM interoperability — though perhaps not as clearly as we might have done — is that the market will induce interoperability solutions. Whether they are legal (e.g., hacks) or not (e.g., this week’s announcement by Nokia and Microsoft, or the Coral Consortium, which sets up a web-services framework for third-party interoperability providers) is almost beside the point. Just because it’s not legal doesn’t mean that it will be prosecuted; e.g., there are many hacks to iTunes floating around, and Apple does not appear to be going after them.

    I would also like to respond to your comment about MP3Tunes on your other post about our paper. MP3Tunes already exists – it’s called EMusic.com – and the major labels won’t license to it and probably never will. Meanwhile, as I have come to learn, indie labels tend to consider EMusic their biggest source of online revenue. MP3Tunes has no reason to exist other than as a monument to its CEO’s bounless ego and Quixotic bravado.

  8. Political speakers still need a right of circumvention for quotation and criticism — choosing a market loser DRM system shouldn’t make it more difficult to make fair use of your works for criticism. There’s a public interest here that competition in the DRM market won’t adequately address.