The following article was researched and written over the last three months of my undergraduate BA in Internet Communications through Curtin University. It was presented with a literature review that can also be found here.
My Research looked at the qualifying factors for the use of Digital Rights Management (DRM) in the war against end user piracy. While some publishers of digital products including Tor Books have reported no increase in end user piracy since removing all embedded DRM from their stock in the last 12 months, others such as Electronic Arts have reported no decrease of unauthorised product in the market since rolling out new anti-piracy technology. As the arts, entertainment and cultural industries navigate their way through the current transitional period of Intellectual Property Rights Management, many consumers have expressed confusion and frustration over the legal frameworks that govern the use of digital goods, and the technologies that protect them. While the removal of embedded anti-piracy technologies can leave digital product open to end user piracy, the implementation of DRM effectively wages war on paying customers. Before any DRM can be presumed a success there must first be evidence of a return on investment and a notable decrease in piracy. Without assessing the economics of piracy compared to the financial cost of implementing restrictive anti-piracy technologies, those that implement DRM will continue to devalue their product and force consumers to seek unrestricted alternatives.
If any of that sounds remotely interesting to you, I would suggest a good cup of coffee, glass of wine or bottle of craft beer for the rest of the journey.
As always comments, feedback and constructive criticism are greatly appreciated.
Introduction – Going to War
The management of end user piracy for digital goods sold online has seen both rights holders and consumers faced with challenges that current technologies and strategies have mostly failed to meet. Consumers of digital goods are often confronted with confusing copyright rhetoric, products embedded with restrictive technologies and the potential of legal action for the unauthorised use of product they have legitimately purchased. Rights holders on the other hand are burdened with a choice between doing nothing or baring the cost of researching and developing the best way to manage content and control potential piracy. By focusing on the end user experience of DRM in contrast to its effectiveness in combating end user piracy, this article will argue that both the content and the consumer are the biggest casualties to date in the end user piracy war. In the transition to digital distribution some rights holders have embraced the interactivity of the new platform to maintain control over the dissemination of their Intellectual Property, but most have waged war on end users who they see as the catalyst for all piracy. While end users remain the focus of the war on piracy, the problems of enforcing copyright law in the digital market will go unresolved and continue to cause frustration on both sides of the digital transaction.
DRM: The weapon of choice
The term Digital Rights Management or DRM, refers to a set of strategies and technologies used to safeguard digital goods against the unauthorised distribution of their content or Intellectual Property (IP). Rights holders who implement DRM believe it reduces end user piracy and stops customers from distributing copies of their product without authorisation (Lambrick, 2009 p193). This combination of technology and management has become the weapon of choice in the war against piracy for many companies who see end user piracy as the catalyst for their decreasing profit margins. Gillespie (2007, p7) defines DRM as a system of digital technologies that make it possible to embed the “legal standards of copyright” into digital goods (Gillespie, 2007, p7). However, for many consumers confused by the legal framework of copyright surrounding digital purchases, DRM has become an annoyance and frustration (Yu, 2011 p883). With this customer frustration in mind, companies invested in protecting their IP with DRM have produced a vast array of strategies and technologies that aim to reduce consumer grievance whilst maximising a product’s integrity against being copied.
With companies always trying to stay ahead of hackers and file sharing trends, the development of DRM has become a huge industry concern. The type of DRM embedded into digital goods today is usually researched, developed and implemented in secrecy by private companies, but common implementations include:
- Digital watermarking and fingerprinting – A combination of technologies that allow rights holders to match a hidden watermark embedded into digital product that will ‘finger print’ or match the user’s parent device, as a method to limit access to the digital content (Chaudhry et al. 2011 p266 – p268).
- Software splitting – A strategy that asks users to access two separate files or online services in order for the purchased product to work effectively (Chaudhry et al. 2011 p266 – p268).
- Virtual leashing – A method that ties a product to a limited number of devices or online user accounts (Chaudhry et al. 2011 p266 – p268).
- Brand protection – Software architecture that in theory renders copies useless due to embedded corruptions and anomalies (Chaudhry et al. 2011 p266 – p268).
At a practical level, these proprietary DRM strategies manage the licensing agreement between the rights holder and the consumer, by imposing restrictions on how the content or IP can be accessed (Deveci, 2012 p1). Typically, these strategies tie a purchase to parent devices and or online customer accounts (May, 2003). While this tethering mechanic still remains popular, it has proven to be a point of frustration for customers who own multiple devices, and is a target for hackers who enjoy the challenge of removing restrictions on software (Yu, 2011 p883). Vernik, Purohit, & Desai (2011) states that the restrictive anti-piracy measures: “inconvenience legal buyers who have no intentions of engaging in piracy” (Desai et al, 2011 p1014). In an effort to alleviate the customer frustration of tethering and to make DRM technologies harder to hack, contemporary rights management solutions has seen digital purchases tied to the cloud rather than a limited number of devices or consumer accounts.
By taking advantage of the internet connected computers, game consoles, music players, phones and tablet computers many of us now use, an ‘always on’ DRM is able to keep constant vigil over digital purchases. In theory, right holders that force customers to maintain a connection to an online server, are able to control access to the product’s content or IP, as a way to ensure no one is making unauthorised copies (Thier, 2013). While this form of DRM has removed the leash between product, user and device, the ‘always on’ method of control has created its own set of customer frustrations and hacking targets. Electronic Arts and Maxis, recently experienced the pit falls of ‘always on’ DRM during the March 2013 rollout of their highly anticipated redesign of flagship game Sim City. After higher than anticipated sales in the weeks following release, the software’s ‘always on’ requirement saw game servers crash and many angry customers locked out unable to play (Kain, 2013). While EA maintains that Sim City only requires an internet connection for core game play and not for DRM, a group of hackers collaboratively produced an illegal version of the software just to prove it could run offline with no effect to gameplay, and uploaded it for free (Kain, 2013). Amidst the negative media coverage and DRM-free copies of the game being uploaded to file sharing sites, the company was forced to offer affected customers a full refund and to publicly apologise for its “mistake” (Moore, 2013). While other roll-outs of ‘always on’ DRM such as Spotify’s high-value, low-impact technique have achieved arguably better results, the new trend for greater innovation in rights management has not been without difficulties for both consumer and rights holder.
Music steaming service Spotify launched its digital product with an ‘always on’ rights management plan to offer customers a lot of value for the inconvenience of having to maintain their connection. By logging on and maintaining a constant connection to Spotify servers, customers are able to access a huge library of musical content for free or for very little financial cost. While the service has experienced a successful international rollout (Steadman, 2013), it recently felt the sting of a hack that exploited their DRM technology; a technology which in effect means that you never download any music from Spotify, you just listen to it. Exploiting a floor in the browser based version of Spotify, hackers were able to build a Google Chrome application that broke the DRM and allowed people to download music to their own hard drives; something which the technology was designed to prevent (Steadman, 2013). While contemporary DRM strategies like this have demonstrated innovative ways to minimise customer frustrations, the Electronic Arts Sim City server crash and the Spotify browser hack both indicate there is still some way to go before the developers of anti-piracy technology have created the ultimate copyright protection weapon.
Quantifying losses: The cost of war
In light of so many expensive proprietary DRM strategies failing to significantly reduce end user piracy or customer frustration, some academics have focused on the possible benefit of combining private rights management solutions and developing open standards for DRM. Chaudhry et al.2011 p269) and Sudler, (2013) found that companies who invested in the development of proprietary DRM could benefit from pooling their research and development efforts into industry standards. Sudler (2013) states that: “Industries can address online piracy by combining appropriate technology, innovative business models, and piracy analytics in the evolving supply chain ecosystems” (Sudler, 2013). While Deveci’s (2012) research also suggest that a successful combination of DRM technology could lead to a reduction in piracy, it argues that quantifying a financial return on investment for such a large open source project is hard, if not impossible to achieve. One of the flaws of any DRM is that there is no accurate way to measure the intent of an individual to pirate a product once they have purchased it (Refenes, 2013 & Biglione, 2011 p66). Therefore, developing an accurate formula to calculate a return on investment for implementing DRM is almost impossible. If a financial return on investment for DRM can not be quantified, digital goods industries are left to assume that individuals sharing their content online are the enemy, and that DRM is a necessary operational cost.
With the Motion Picture Association of America reporting an annual loss of $58 billion to online piracy (MPAA, 2011), there is little doubt that pirated product remains one of the digital content industries’ greatest challenges. However, Moses argues that reported financial losses by bodies like the MPAA are grossly exaggerated because they calculate every unauthorised download as one less product sold (Moses, 2011 p8). Sandulli & Martin-Barbero’s (2007) research found that quantifying piracy in this way is misguided because you cannot quantify the intention of an individual to purchase a product based on their access to pirated material. Just like trying to quantify a financial return on investment in DRM, calculating the financial loss to digital piracy is fraught with pitfalls and assumptions. While many sectors of the digital goods industry would claim that piracy of their product is bad for business, research shows that some online piracy can actually be beneficial for a product looking to drive demand in the market place (Xie & Sirbu, 1995). Aguiar & Martens (2013) study into digital music piracy online found that:
“New music consumption channels such as online streaming positively affect copyrights owners…while piracy has a negative effect on the probability to purchase music in CD format, it has a positive effect on the probability of downloading music legally. Hence legal music downloading and piracy are complements rather than substitutes” (Aguiar & Martens 2013 p7).
Lessig (2010) argues that end user piracy, such as file sharing and remix is an expression of an individual’s desire to control the flow of the content they consume and be creative with it. If digital product embedded with DRM continues to restrict consumer desire to share and assert control over content, the possibility of the market losing interest and then focusing on the content that they can easily share and control is high. This should be considered by all rights holders when calculating the true economic value and cost of DRM.
If investors were able to calculate a financial return on investment for a successful DRM, Xie and Sirbu’s (1995 p910) research would suggest that a loss of ‘free’ advertising and online consumer hype should also be taken into account. If the unauthorised sharing of digital product online can actually activate consumers to make future purchases (Chellappa and Shivendu 2005), limiting a product’s ability to be shared must be calculated when accessing the efficacy of DRM as a weapon against end user piracy. Chellappa and Shivendu (2005) argue that while an individual may not purchase the exact digital product a friend shares with them, they are more likely to consume something related to that product because of the sharing process. This addition to the equation makes calculating the cost of implementing restrictive DRM even more difficult and adds to the variables when it comes to investing in DRM. While the financial return on investing in current anti-piracy technologies can not be calculated and the cost of online file sharing remains unquantifiable, the application of embedded DRM on digital goods will only continue to frustrate customers, devalue the product, and criminalise consumers who seek unrestricted content.
Criminalising consumers and devaluing content: The casualties of war
So far the DRM war on end user piracy has only driven up the cost of distribution, reinforced customer frustration with product technology and stoked legal rhetoric. In this climate, unauthorised product has become an attractive option for internet-savvy net citizens who seek ‘unbroken’ content that allows them to take advantage of the freedoms of online communication (Biglione 2011 p66). Kirk Biglione argues that digital products embedded with limitations:
“Make pirated editions seem more valuable by comparison. Unnecessary content restrictions effectively limit the development of new products and services at a time when the publishing industry should be embracing innovative new uses. From a business perspective, publishers need to take a hard look at the opportunity cost imposed by DRM” (Biglione, 2011 p66).
The research of Desai et al.2011 p1020) also suggest that restrictive DRM has reduced the value of digital products in the eyes of the consumer, and further blurred the lines between ‘free’ pirated content and legitimate purchases of IP and digital goods. It seems that current DRM technologies are not only failing to prevent piracy due to hacking, but are also making consumption of unauthorised content an attractive option for customers frustrated by the restrictions placed on legitimate purchases. While sections of the digital goods industry continue to focus on the development of DRM aimed at end users, legitimate customers will remain a casualty of the IP protection war.
If the war on piracy continues to focus on end users, consumers will remain confused about the legal rhetoric, frustrated by restrictive technologies and may eventually stop buying digital content. Yu (2011 p883) found that consumers who are unsure of their rights when it comes to using their legally purchased digital entertainment media are more likely not to make further purchases (Yu, 2011 p883). The fact that illegal software that circumvents DRM technology is widely available online for consumers to access is evidence there is legitimate consumer demand for DRM-free media (Herman 2012). Desai et al.2011, p1020) found that many legal consumers turn to this type of technology because they feel punished by the restrictions DRM imposes on what they can do with their purchased product. Sudler (2013), states that: “Under these new [distribution] ecosystems, digital rights management has proven ineffective at stopping piracy. Furthermore, DRM systems have been shown to discourage legitimate buyers” (Sudler, 2013). While the research of Desai et al (2011) also found that new business models could activate consumers to once again return to legitimate purchasing, they argue that the financial value of digital products would not return to pre-digital levels. Therefore, it may be prudent for those invested in the digital goods markets, to consider evolving their business model to secure what value any effected product may still have, and then consider ways to embed more value and less restriction into the product as a way to lure consumers into legitimate methods of accessing their product.
One of the biggest challenges consumers face with DRM is that embedded technology is not flexible enough to tell the difference between piracy and customers legitimately enjoying their purchase. Lynch (2001) argues that embedded DRM technologies are restrictive in their very nature and must always assume that all use outside of a very narrow framework is unauthorised and criminal. Lynch 2001 found that: “it’s unlikely that rights management systems can identify legal uses. At best they can offer mechanistic approximations” (Lynch, 2001). While some consumers are happy just to enjoy a product ‘as is’, others are passionate about sharing, reviewing and remixing that content in a physical market where that sort of use is regulated by amendments to the copyright act for fair use and fair dealing. Arnab (2004) found that: “It is very likely that all the fair uses that are expected by users cannot be accounted for in an automatic system” (Arnab 2004 p5). Therefore, the DRM developed by digital content producers as an armoury against perceived financial loss to sharing, review and remixing by end users, is in reality driving down the value of the goods they are intended to protect in the eyes of consumers wishing to participate in their own culture. While DRM raises production costs, and encourages these consumers to seek unauthorised alternatives, the war on piracy will be never ending and self-perpetuating.
Ending the war: Give peace a chance.
While some sectors of the digital goods industry continue focus on restricting the use of product in order to protect IP, others have invested in developing new strategies to engender consumers to pay for digital product and to reduce operational costs. Adding value to product to offset any customer frustration, or simply removing DRM altogether are popular options for rights holders. Desai et al. (2011 p2) research suggests that removing restrictive DRM and setting a market-based value on product can activate consumers to move away from unauthorised material. In effect Desai et al.2011 p2) found authorised product offering the same value as pirated product would be an attractive option to consumers, and they would be willing to pay a market-based price for it. When removing DRM from content in the iTunes digital product store CEO Steve Jobs said: “because a DRM- restricted product will only be purchased by a legal user, in a perverse sense, only the legal users pay the price and suffer from the restrictions; illegal users will not be affected because the pirated product does not have DRM restrictions (Jobs 2007 as cited in Desai et al 2011 p2). Sandulli & Martin-Barberos’s (2007) research also suggests that adding value to a product where there was none before, can also activate consumers to make legitimate purchases over choosing to consume pirated material. This evidence that consumers are willing to pay for the digital product that they consume is good news for the sectors of the industry willing to take chances and embrace new business models that do not involve targeting and criminalising end users.
The alleviation of customer frustration and the high economic cost of implementing DRM are some of the benefits for rights holders who have chosen to remove embedded anti-piracy technology from their digital products all together. Editorial Director of online book store Tor Books, Julie Crisp, says that her customers are: “a technically sophisticated bunch, and DRM is a constant annoyance to them. It prevents them from using legitimately purchased e-books in perfectly legal ways, like moving them from one kind of e-reader to another” (Crisp, 2013 as cited in Geuss, 2013). Crisp (2013 as cited in Geuss, 2013) stated that one year after removing embedded DRM from their product her company had seen no evidence of increased piracy. With other digital good retailers like iTunes and Amazon, now offering DRM free options of their digital product, it would seem the trend of offering unrestricted digital content is on the rise. By circumventing the need to seek unauthorised content or hack DRM using software, which Herman (2012) found was widely available online, companies have removed customer frustration with embedded technologies. With successful companies like Thor books, iTunes and Amazon already taking the leap, the removal of embedded DRM does not seem to affect the bottom line. While not all producers of digital goods have embraced the DRM-free model, many have made a difference to the customer experience of anti-piracy technology by providing a marked difference between their product and any unauthorised version that may be available.
Although the service was recently hacked, the success of Spotify’s rights management model proves that adding value to legitimate digital products distinguishes them from unauthorised versions. By providing extra value the content producers, retailers and rights holders can entice users to choose legitimate purchases over unauthorised consumption. Because the cost of reproducing a digital product is so low, economic theorists suggest the market will therefore dictate a low price for the product (2010). When authorised product that is embedded with restrictive DRM is compared to unrestricted pirated material, its value appears less (Biglione, 2011 p66). If producers and rights holders want to boost the value of goods that restrict what a customer can do with them, they need to provide compensation. Adding extra value to a product provides that compensation. Lessig (2007) believes that consumers want to control the flow of content themselves and to be creative with the products they consume. If we assume that Lessig (2007) is correct, than embedding a product with tools that allow customers to assert control through sharing and remixing their purchases must be a better solution than restricting it. Adopting this form of embedded DRM allows services like Spotify to police where and how their content is shared, and gives customers the freedom to take advantage of the read and write capabilities of the World Wide Web. The advantages of developing value added experiences that exploit the freedoms of the online supply chain are a huge step toward finding a new accord in the transition to digital distribution.
Automated rights management strategies: The new frontier
With so many sectors of the digital goods industry moving away from embedding restrictive technologies into the products they sell, it would be easy to assume that the war on end users is over. However, the exploitation of copyright law as a revenue model has not only remained a strategy for certain rights holders, for some this new form of managing digital rights has become an emerging and lucrative business model. Rights holders and producers who legally seek access to the names and addresses of users who are active members of file sharing sites, do so by providing evidence that a computer associated with their internet connection has accessed certain unauthorised material (Kravets, 2011). Armed with this information, a trend is emerging in the United States where large numbers of rights holders have co-operatively developed an automated system that detects and automatically lodges law suits against users who have uploaded or downloaded certain content (Masnick, 2010). This trend of using copyright and technology to target file sharing users is perhaps the most aggressive form of DRM to date.
For some content producers struggling in the new market, seeking legal damages in a court of law has become a valid way to manage their rights and develop a revenue stream. Masnick (2009) argues that this practice is particularly exploitive of copyright law because some content producers have admitted to uploading their digital product to file sharing services, some with the specific purpose of legally pursuing individuals who download the content they have uploaded. Kravets (2011) agrees and asserts that recent law suits “appear to have been designed from the start as a for-profit endeavour, not as a deterrent to piracy” (Kravets, 2011). This new Digital Rights Management strategy is taking advantage of copyright case law that can enforce individual damages of up to $150,000 for each infringement (Baio, 2013). While rights holders and content producers are within the law to pursue compensation for perceived loss to their bottom line, it would seem hard to argue that each unauthorised download of the latest pop idol’s single, or blockbuster movie was at a cost of $150,000 to the profits of rights holders. If lawsuits like these become commonplace, the digital goods industry will effectively change the way many of us currently use the internet as consumers’ choices are driven by a fear of litigation, rather than exploiting the web freedoms we digital consumers enjoy today.
While some sectors of the digital goods industry are moving away from targeting customers who are willing to pay for their goods as a strategy in their war against end user piracy, the emerging practise of using copyright law to entrap people as a revenue stream raises numerous new ethical issues for digital rights managers and owners. By exploiting copyright and case law that struggles to represent the current digital supply chain, some companies have developed strategies to commodify detectable piracy of their product. While most people stung with a copyright infringement notice and threat of legal action, chose to settle out of court for far less than $150,000 per infringement, automated law suits that settle for a few thousand dollars each may present a more concrete and therefore attractive investment of capital and resources than embedded DRM (Baio, 2013). When compared to the unmeasurable investment in embedded DRM, this practise looks like a sound financial investment for some rights holder. If settling out of court removes the financial burden from individuals worried about the cost of defeat, the law will remain untested, and without relevant case law to protect against the further misuse of the outdated laws by these companies, there remains a threat that the pursuit of such an exploitative revenue stream may become entrenched and the industry norm (Baio, 2013). If rights holders and consumers are truly invested in ending the war on piracy they should be collectively lobbying to change current copyright law, to ensure that it better reflects the new distribution ecosystem. While many rights holders invested in DRM have made the choice to remove the burden of anti-piracy technologies from their paying customers, end users are still in their sights. As parts of the industry lobby for new approaches in copyright protection, which are more reflective of the new digital distribution model, others have just started their campaign to wage war on end users who take advantage of the world’s most advanced communication, publication and distribution platform, by sharing, remixing, reviewing and uploading content.
While DRM technologies and anti-piracy strategies continue to be ineffectual in stopping consumer piracy, any investment in their implementation will only serve to devalue the product, reduce its potential market share and frustrate customers. However, the legal persecution of individuals engaged in sharing, review or remix online as a business model will have enormous effects on the way we currently communicate and participate in culture online. Many successful companies have shown that the removal of embedded forms of DRM alleviates end user frustration with the technology and equalises a products’ potential market share without any increase in end user piracy. Before any DRM can be presumed as successful, there must first be evidence of a return on investment, a notable decrease in piracy, and an ethical outcome for all invested in the digital supply chain. The real cost of the DRM war on end users has yet to be fully realised, and calculating a return on investment is fraught with assumption and is therefore unreliable. The only certain casualties are consumer experience, content and accessibility. The current assault of the war on end user piracy and managing digital rights online will continue to criminalise consumers, limit the true potential of the digital delivery system and cheapen the spoils of war – good content that customers will pay for.
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