May 30, 2024

Archives for February 2005

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.

How Competitive is the Record Industry? A Natural Experiment

Derek Slater, responding to the recent Cato paper on DRM technologies, raises an important question: How competitive is the record industry?

The Cato paper argues that market competition will blunt the possible negative effects of DRM on consumers. The theory is that a variety of competing DRM systems will emerge for online music. These systems will offer differing levels of flexibility to consumers. They will face market pressure to meet consumers’ needs, because consumers can choose which one to buy. Record companies will face competitive pressure to license their music via the DRM systems that consumers want to buy. If the DRM market is competitive, and the music market is competitive, then market forces will foster a reasonable DRM technology.

This theory has much to recommend it. But the theory works, of course, only if the music business really is competitive. If the record companies act as a cartel, they can use the resulting monopoly power to dictate the design of DRM systems, regardless of consumer preferences. Tellingly, the Cato paper does not bother to argue that the major record companies behave competitively in this respect. Instead, the section on record company competition (p. 6) talks almost exclusively about indie labels, which account for only a small piece of the overall market.

How can we tell whether the record industry is responding competitively to DRM? An interesting natural experiment is about to start. MP3Tunes, a new startup headed by serial entrepreneur Michael Robertson, is launching a new music service that sells songs in MP3 format. Will the major record companies license their catalogs for sale on MP3Tunes?

In a competitive market, they would license to MP3Tunes. There are surely some customers who are willing to pay for music but don’t want to accept the hassles of other online music services. MP3Tunes will extract revenue from these customers.

You may object that the record companies won’t sell their content in an unprotected format. But of course they already do so, and in fact most of their revenue comes from sales in the unprotected CD format. And they can’t rationally be worried that their existing catalogs will leak to the P2P networks – that already happened, long ago. It’s hard to see how licensing their existing catalogs to MP3Tunes would make the P2P infringement problem any worse.

The record companies may feel that other music services meet their needs better, for example by increasing the likelihood that consumers will have to repurchase the same song later. These factors might affect the price they offer MP3Tunes, but they shouldn’t preclude negotiations altogether. In a competitive market, producers have to offer the products that consumers want, not the products the producers like.

It’s hard to see any economically rational reason for a major record company to refuse, categorically, to deal with MP3Tunes – unless we assume that the major record companies act as a cartel. That’s why the record industry’s response to MP3Tunes will tell us how competitive that industry really is.

(Let me preempt some rebuttals by pointing out that if you want to argue about what would happen in a competitive market, your argument cannot be based on assertions about what the record industry, as a whole, wants or needs. Assuming that “the record industry” is an actor whose needs, desires, or plans matter is tantamount to assuming that the industry is in fact a cartel. Nor can you assume that any individual company in a competitive market cares about the fortunes of the industry as a whole, as opposed to its own selfish interests. Much of the discourse about the record industry assumes, implicitly, that it is a cartel. If you want to rebut my argument about how a competitive industry would behave, be very careful to avoid adopting that assumption.)

Macrovision Tries Passive Anti-Copying Technology for DVDs

Macrovision is introducing a new DRM technology for DVDs, apparently based on passive changes to the data encoded on the disc, according to a article by John Borland. (The article is entitled “New Copy-Proof DVDs on the way?” The answer to that question is “no.”)

The new technology, called RipGuard, tries to code the DVD data on the disc in a way that triggers bugs in popular DVD ripping programs, while remaining readable on ordinary DVD players:

Macrovision’s new product takes a different approach to antipiracy than it has taken for analog or audio CDs. Gervin said Macrovision engineers have spent several years looking at how various DVD-copying software packages work and have devised ways to tweak the encoding of a DVD to block most of them.

That means the audio and video content itself requires no new hardware and isn’t scrambled anew, as is the case with most rights-management techniques. Someone using one of the ripping tools on a protected DVD might simply find their software crashing, or be presented with error messages instead of a copy.

As when used on CDs, this passive approach will only work against some ripping programs, and in any case will become useless as the bugs in ripping programs are fixed. If the goal is to keep protected DVD content off the P2P nets, then this product will fail.

The article argues that RipGuard can be updated over time, which is true, but not very helpful for copyright owners, for two reasons. First, there is a limited supply of disc-reading bugs in ripping programs, and each version of RipGuard will cause some of them to be fixed, making it harder to find bugs to exploit in the next RipGuard version. Second, although users can update their ripping software, there is no way to update RipGuard on DVDs that have already been sold. Once a version of RipGuard becomes useless, all of the discs produced with that version will be copyable forever after.

This is yet another anti-copying technology that will have no effect on P2P availability of content. It will make ripping somewhat more difficult for people who don’t use P2P; but how does that help the studios?

Student Writing Blog: "Information Technology and the Law"

This semester, I’m teaching “Information Technology and the Law”. We’re reading a series of articles and court decisions on important techno-legal issues.

I’ve created a student writing blog, on which students will post weekly essays on topics related to the course. Essays are 400-500 words in length, with due dates staggered through the week so that we get some new essays every day. (Some students writing under pseudonyms for privacy.)

The site is open to the public, for reading and comment. Please do drop in and join us.

Lawrence Lessig, Unmasked

We’re watching this week’s episode of West Wing. On the TV screen, Professor Lawrence Lessig starts talking. “I know that voice,” exclaims my wife. “It’s The Hacker!”

On West Wing, Lessig was played not by Himself but by the actor Christopher Lloyd. One of Lloyd’s other roles is on Cyberchase, an animated PBS Kids show, as the voice of an arch-villain known only as The Hacker. Here’s a picture and description of The Hacker, from the Cyberchase website:

The cosmology of Cyberchase cries out for cultural analysis. The Hacker is locked in an endless struggle for supremacy against Motherboard, the benign Mother-Goddess of cyberspace, who appears to ordinary humans only by teleconference. In each episode, The Hacker, with help from his henchrobots, unleashes a dastardly plot (e.g., releasing a virus, letting bugs invade the database library, or draining Motherboard’s life-giving liquid coolant) to overthrow Motherboard and unleash chaos on all of cyberspace. A group of multicultural kids must solve some kind of mathematical puzzle to foil the Hacker’s otherwise-foolproof plan.

Come to think of it, there are those who see Lessig in much the same way, as the evil genius who will destroy cyberspace with his Free Culture plot, replacing the benign content-rich cyberworld of Mother MPAA with a content-free dystopia of uncontrolled filesharing. It’s up to those feisty kids at the DRM companies to figure out some fancy cryptographic math that will foil his evil plan.

Look carefully at the picture above – the Hacker appears to be wearing Lessig’s trademark black jeans. Coincidence? I think not.

I guess that makes most of us henchrobots.