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.

Macrovision is introducing a new DRM technology for DVDs, apparently based on passive changes to the data encoded on the disc, according to a news.com 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?