B R E A K I N G D O W N D I G I TA L B A R R I E R S
`
`C A S E S T U D Y
`
`DRM-protected Music
`Interoperability and eInnovation
`by Urs Gasser and John Palfrey
`
`EX1022
`Roku V. Media Chain
`U.S. Patent No. 9,715,581
`
`

`

`CASE STUDY
`DRM-protected Music
`Interoperability and
`eInnovation
`
`Urs Gasser and John Palfrey
`
`Berkman Publication Series, November 2007
`http://cyber.law.harvard.edu/interop
`
`The Berkman Center for Internet & Society, Harvard University
`Research Center for Information Law, University of St. Gallen
`Sponsored by Microsoft®
`
`This work is licensed under the Creative Commons
`Attribution-Noncommercial-Share Alike 3.0 United States License.
`To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/us/
`
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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`ABSTRACT
`
`This report – representing one of three case studies that are part of a transat-
`lantic research project aimed at exploring the potential relation between ICT
`Interoperability and eInnovation – examines issues surrounding DRM inter-
`operability within the context of music content. Recognizing that interoper-
`ability will likely be defined differently by different stakeholders, we begin by
`establishing a rough, holistic working definition of interoperability and then
`assess the implementation of DRM in the music content market and associ-
`ated problems with regard to interoperability. We then go on to explore the
`technological, market, and legal environments in their relation to and impact
`upon the achievement of interoperable DRM systems. In part 2, we analyze
`potential benefits and drawbacks of an interoperable DRM environment for
`the music content market. We then evaluate both private and public-initiat-
`ed approaches towards the accomplishment of interoperability using a series
`of qualitative benchmarks. Lastly, we conclude by summing up the merits
`and demerits of the various approaches. Our findings lead us to surmise that
`normative considerations weigh in favor of greater interoperability in gen-
`eral. The challenge of determining the optimal level of interoperability and
`the best approach for attaining it, however, points toward consideration of a
`number of complex factors. We conclude that the best way to determine the
`optimal level of interoperability and means of accomplishing it is to rely upon
`economic-based assessments on a case-by-case basis.
`
`

`

`TA B L E O F C O N T E N T S
`
`iii
`
`TABLE OF CONTENTS
`
`About this Report
`
`Introduction
`
`1 State of Play: DRM Music Interoperability
`
`1.1 What is DRM Interoperability?
`
`1.2 DRM Interoperability and Music Distribution
`
`1.2.1 Offline distribution
`
`1.2.2 Online distribution
`
`1.3 Forces at play: Some drivers and inhibitors
`
`1.3.1 Complex technology
`
`1.3.2 Dynamic market incentives
`
`1.3.3 Conflicting influences of law
`
`2 Assessing DRM Music Interoperability
`
`2.1 Possible benefits
`
`2.1.1 Competition and innovation
`
`2.1.2 Autonomy, choice, and flexibility
`
`2.1.3 Access, diversity, and openness
`
`2.2 Possible drawbacks
`
`2.2.1 Security
`
`2.2.2 Privacy
`
`2.2.3 Accessibility
`
`2.3 Conclusion
`
`v
`
`1
`
`4
`
`4
`
`7
`
`7
`
`8
`
`12
`
`12
`
`16
`
`19
`
`24
`
`24
`
`24
`
`27
`
`28
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`29
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`30
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`31
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`32
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`33
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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
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`3 Approaches towards DRM Music Interoperability 36
`
`3.1 Basic Framework
`
`3.1.1 Overview
`
`3.1.2 Mapping approaches
`
`3.1.3 Benchmarks
`
`3.2 Evaluating selected approaches towards DRM music
`interoperability
`
`3.2.1 Selected approaches by private actors
`
`3.2.1.1 Reverse engineering
`
`3.2.1.2 IP Licensing
`
`3.2.1.3 Open Standards
`
`3.2.2 Selected regulation-based approaches
`
`3.2.2.1 Mandating Standards
`
`3.2.2.2 Disclosure of interoperability information
`
`3.2.2.3 Transparency rules, labeling requirements
`
`3.2.3 Conclusion
`
`4 Summary
`
`36
`
`36
`
`37
`
`38
`
`39
`
`39
`
`39
`
`41
`
`44
`
`48
`
`48
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`51
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`53
`
`55
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`58
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`A B O U T T H I S R E P O R T
`
`v
`
`ABOUT THIS REPORT
`
`This report represents one of three larger case studies on interoperability in
`information and communication technologies (ICT) as part of a transatlantic
`research initiative between the Berkman Center for Internet & Society at
`Harvard Law School and the Research Center for Information Law at the
`University of St. Gallen (Switzerland). The research initiative, supported by
`Microsoft, Inc., seeks to address four core questions: First, what is an ap-
`propriate understanding of “interoperability” in important areas of digital
`technology? Second, is there a positive relationship between higher levels of
`interoperability in ICTs and innovation beyond anecdotal evidence, ground-
`ed in focused analytical work? Third, what are possible approaches to achieve
`ICT interoperability, ranging from IP licensing to open standards, and what
`are their respective benefits and drawbacks? Fourth, based on the answers to
`the first three questions, what conclusions can be drawn for policymakers and
`other stakeholders when it comes to ICT interoperability? Naturally, differ-
`ent research designs could be used to explore these questions. The principal
`investigators of the present research initiative decided to answer the four core
`questions in concrete rather than abstract terms by working with three larger,
`exploratory case studies from which more general conclusions – in the sense
`of “lessons learned” – might be drawn. This report summarizes the findings
`with regard to the case study on DRM-protected Music Interoperability and
`should be read against the backdrop of the four larger research questions pre-
`viously mentioned. Consequently, this study does not aim to discuss DRM in
`general nor does it seek to provide a comprehensive discussion of interoper-
`ability as such. Rather, we have chosen to examine DRM-protected music
`due to its value as a significant microcosm within the digital environment
`from which beneficial insights might be gained with regard to the guiding
`research interest behind this project.
`
`The design of the research initiative, which has produced a series of publica-
`tions including a Policy White Paper, is certainly shaped by the investigators’
`underlying attitudes towards interoperability which can be summarized as
`follows: Like many observers of the ICT space, the authors of this study are
`inclined to think that interoperability in the ICT space (as elsewhere) is desir-
`able. As a policy matter, the contributors to this report believe that innova-
`tion, consumer choice, and competition are sound policy goals. To the extent
`
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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`that some forms of interoperability are likely to contribute to these ends, the
`authors will argue that interoperability should be promoted. Much of the ex-
`ercise undertaken in this report, however, is to adopt a skeptical stance toward
`these positions and to ascertain whether the evidence supports them.
`
`

`

`I N T R O D U C T I O N
`
`1
`
`INTRODUCTION
`
`Françoise M. bought Alain Souchon’s “J’veux du Live,” a CD distributed by
`EMI France. The CD played on her home entertainment system, but not on
`the CD player in her Renault Clio. As it turned out, the copy protection scheme
`on the CD rendered it impossible to play the CD on certain devices, including
`car radios. Françoise M. and a French consumer protection organization filed
`a lawsuit against EMI with the Tribunal de Grande Instance de Nanterre. That
`court ruled that a CD that could not be played on all players restricts consum-
`ers and must therefore be considered a defective product. Accordingly, the
`court held that the music fan had the right to get her money back.
`
`In summer 2004, RealNetworks added a new feature called “Harmony” to
`its RealPlayer. Harmony allowed users of the RealPlayer Music Store to play
`their songs on iPods from Apple. This action on the part of RealNetworks
`frustrated Apple’s music protection scheme, FairPlay, that, among other
`things, prevents songs bought from other online music stores to be played
`on an iPod. In response, Apple threatened (but did not file) a lawsuit against
`RealNeworks and soon upgraded its software to disable RealPlayer’s convert-
`ing functionality.
`
`The two examples in the preceding paragraphs – taken from the perspective of
`a consumer and competitor respectively – tell stories about the use of a certain
`type of technology known as digital rights management (DRM) systems. In
`the digital media realm, such systems are used by right-holders to control the
`access to and use of music or other forms of digital content. DRM technol-
`ogy essentially allows right-holders to set and enforce rules about what users
`can and cannot do with digital content distributed either over the Internet or
`on physical media such as CDs or DVDs. The initial rationale for DRM was
`mainly to stop large-scale copyright infringement over peer-to-peer networks.
`More recently, however, alternative justifications such as price-discrimination
`and platform innovation have been identified.1
`
`1
`
` See Ed Felten, DRM Wars: the Next Generation, http://www.freedom-to-tinker.
`com/?p=1051.
`
`

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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`Traditional DRM schemes regulate the interoperation between digital prod-
`ucts and services.2 In order to serve its purposes (most importantly, to regulate
`access to digital content and its redistribution, but also to allow price dis-
`crimination, depending on the particular business model), it is deliberately
`designed to create a certain degree of incompatibility. Depending on the per-
`spective and context, the resulting level of interoperability may be perceived
`as a positive or negative result. In the case of Françoise M., it is rather straight-
`forward that the lack of interoperability led to a negative consumer experi-
`ence. In the second example, the lack of interoperability between competing
`online music stores and players is clearly intended by Apple, which uses DRM
`to create a strong tie between its popular portable music player (iPod) and the
`iTunes Store. Viewed from the competitor’s perspective, in contrast, a certain
`degree of interoperability between an alternative online music service and
`Apple’s iPod would be desirable, as Real’s Harmony illustrates.
`
`This paper addresses the issue of DRM music interoperability in greater de-
`tail. The first part of the case study starts with a brief working definition of
`DRM interoperability and provides an overview of the current state of play of
`DRM-protected music. The emphasis of this section is on the degree of DRM
`interoperability that characterizes online music distribution. We then identify
`key factors and forces that affect the current level of interoperability in the
`DRM ecosystem. In this context, we also explore the divergent and often
`dynamic incentive structures among different players and their effects on the
`development and proliferation of interoperable DRM systems. The second
`part of the paper discusses possible benefits and drawbacks of DRM interop-
`erability, thereby focusing on the relationship between DRM interoperability
`and innovation. Finally, in part three, we map and assess different approaches
`towards DRM interoperability, including market-based approaches and pos-
`sible governmental interventions, according to specified benchmarks. Part
`four summarizes and concludes that a blended private-sector approach with
`secondary, reinforcing actions by regulators is likely to be the most promising
`strategy towards increasing and sustainable DRM interoperability.
`
`2
`
` Ed Felten, DRM Wars: Property Rights Management, http://www.freedom-to-tinker.
`com/?p=1052.
`
`

`

`INTRODUCTION
`I N T R O D U C T I O N
`
`3
`3
`
`

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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`STATE OF PLAY:
`RM MUSIC
`INTEROPERABILITY
`1.1
`What is DRM Interoperability?
`The definitions and interpretations of the term “DRM interoperability” are
`manifold and heterogeneous. The EU High Level Group on Digital Rights
`Management, for example, defines the term as follows:
`
`1D
`
`In the context of DRM the term interoperability encompasses consist-
`ent functioning of the overall system including security and access, such
`that the system is able “mutually to use” information in the form of us-
`age rules, content and technical measures “in all the ways in which they
`are intended to function”. This would apply even when content from
`different interoperable services is used and when such content is used
`on different interoperable devices. For the consumer, interoperability
`means he can choose different devices and use them with different serv-
`ices. For the content producer or content aggregator interoperability
`means he is not locked in to one distribution channel that forms a
`gatekeeper to the marketplace. For the device and ICT developer, inter-
`operability means that his products can be used with different content
`services – and that a gatekeeper does not form around a specific DRM
`technology.3
`
`3
`
` High Level Group on Digital Rights Management, Final Report, March-July 2004, p.
`9-10, available at http://ec.europa.eu/information_society/eeurope/2005/all_about/dig-
`ital_rights_man/doc/040709_hlg_drm_2nd_meeting_final_report.pdf..
`
`1
`
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`C H A P T E R O N E State of Play: DRM-protected Music Interoperability
`
`5
`
`Heileman and Jamkhedkar, to take an example from the scholarly literature
`on the subject, discuss the term DRM interoperability in their survey paper
`as follows:
`
`It seems that everyone has a notion of what interoperability means,
`which generally revolves around the idea of “things” working together.
`A slightly more formal definition related to technology is: “The abil-
`ity of one technology to interact with another technology in order to
`implement some useful functionality”. It is possible to make nearly any
`two DRM technologies work together in a manner that satisfies this
`definition. Specifically, by building translation services, it is often pos-
`sible to make one DRM regime work with a different DRM regime.
`At the current stage of development of DRM markets, this approach
`to interoperability makes sense. … However, in order to facilitate the
`continued development of DRM markets, more detailed notions of in-
`teroperability of DRM technologies must be developed. In this sense,
`the real issue is not interoperability per se, but rather the level of inter-
`operability that allows better DRM solutions to be created.4
`Koenen et al., for instance, flesh out the concept of DRM interoperability by
`distinguishing among three types of interoperability:
`
`Full format interoperability expects that the interchange representation
`of the digital content can be consistently processed based on agreement
`between all participants in the value chain. … Full format interoper-
`ability usually entails robustness criteria and a certification regime to
`establish trustworthiness and security of conformant implementations.
`
`… C
`
`onnected interoperability builds on the expectation that consumers
`will have online access, and relies upon online services, some of them
`possibly transformative or capable of complex negotiation, to solve in-
`teroperability problems in a transparent way. While different parties
`may do things in different ways, translations or bridges exist between
`the ways different parties perform DRM functions, and that mutually
`trusted parties can perform these translations transparently, as long as
`devices are connected at least some of the time. …
`Configuration-driven interoperability assumes that system components
`(“tools”, possibly from different vendors) can be downloaded and/or
`configured in real-time at e.g. the consumer’s device or software applica-
`tion. This allows consumer systems to effectively “acquire” functionality
`on demand in order to accommodate new formats, protocols, and so
`on….5
`
`4
`
`5
`
`Gregory L. Heileman and Pramod A. Jamkhedkar, DRM Interoperability Analysis from
`the Perspective of a Layered Framework, in: Proceedings of the Fifth ACM Workshop on
`Digital Rights Management, 17-26, Alexandria, Nov. 2005, p. 20.
`
` Rob H. Koenen, Jack Lacy, Michael MacKay, and Steve Mitchell, The Long March to
`Interoperable Digital Rights Management, p. 10 et seq. 2003 (manuscript on file with Urs
`Gasser), Proceedings of the IEEE, 92(6):883–897, 2004.
`
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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`The few examples provided in the previous paragraph illustrate the diversity of
`approaches aimed at defining and conceptualizing the term “DRM interop-
`erability.” An extensive review of various proposals confirms that a common
`definition of the concept has not emerged. Arguably, the difficulty to agree on
`a common definition has to do with the multi-layered architecture of DRM
`schemes and their interactions with components such as hardware, software,
`and data. In order to be useful in the context of this policy paper, a working
`definition of DRM interoperability should share a number of characteristics.
`First, it is important that the definition is broad enough to embrace both pro-
`cess and architecture-oriented concepts of DRM interoperability.6 Second,
`and related to the first aspect, the working definition should not predeter-
`mine the ways in which a desired level of interoperability must be achieved. In
`fact, we will examine rather distinct approaches to achieve interoperability in
`a later part of this paper, and all approaches to DRM interoperability should
`fit under the working definition. Third, interoperability as a concept is not a
`binary characteristic: different degrees of interoperability exist along a spec-
`trum.7 Fourth, interoperability is often context-specific: In different circum-
`stances it means different things to different stakeholders (such as consumers/
`users, vendors, right-holders, etc.).
`
`Against this backdrop, we use the term DRM interoperability not in the nar-
`row, nor in the strictly technical sense, but as the perceived notion of proper
`functioning of the relevant elements of two or more entities that facilitates
`access to and use of digital content. Often, of course, the content is digital
`entertainment goods, but not always. At the core of this definition is the
`relative ability of different systems, applications, or components – usually
`provided by multiple vendors – to work together in a way that is satisfactory
`to the relevant users of the system, application, or component.
`
`6
`
`7
`
` Process-oriented concepts of DRM interoperability focus on use-cases and the role of
`different actors (such as creators, distributors, purchasers, etc.) with a view to the im-
`plementation of specific DRM functionalities; architecture-oriented concepts distinguish
`different layers of a DRM system regarding the types of services that should be provided
`within each layer and focus on interactions between these layers (see Heileman and
`Jamkhedkar, supra note 4, p. 17-18; see also infra n 15).
`
` See, e.g., L. Jean Camp, Trust and Risk in Internet Commerce, Cambridge: MIT Press,
`2000, p. 176; John Palfrey, Holding Out for an Interoperable DRM Standard, in : Digital
`rights management. 1-26. Bern, 2005, p. 13-14 .
`
`

`

`C H A P T E R O N E State of Play: DRM-protected Music Interoperability
`
`7
`
`A relatively high degree of DRM interoperability according to this definition
`would mean different things to different stakeholders, for example:
`
`•
`
`•
`
`•
`
`•
`
`DRM interoperability from the user’s perspective means that she can
`flexibly choose among different services that offer DRM-protected con-
`tent, which in turn can be used with different applications or on different
`devices.
`
`From the angle of a content provider, DRM interoperability means that
`content and rights can be “cleared” once and distributed over the most
`efficient distribution channel, without being locked into a gatekeeper-
`like distribution channel.
`
`From the content distributor’s perspective, DRM interoperability ensures
`that its technology choice doesn’t affect the utility of its service to users,
`as the delivered content might be played by any application and device.
`
`Interoperability for the vendor means that her products work with dif-
`ferent services, or (more generally) that one system’s component can be
`replaced by a component from another vendor.
`
`In the next section, we will briefly analyze to what extent the current DRM
`music ecosystem is – or is not – characterized by high degrees of interoper-
`ability.
`
`1.2
`DRM Interoperability and Music Distribution
`Offline distribution
`1.2.1
`
`In November 2005, Sony BMG Music Entertainment announced that it had
`instructed retailers to remove any unsold audio CDs that were copy-protected
`by so-called “rootkit” software from their shelves. This recall followed after
`an intense public controversy concerning Sony BMG’s integration of a copy
`protection measure on CDs representing over 100 titles. The copy protec-
`tion involved software that automatically installed on a consumer’s computer
`(after she accepted the EULA) when she tried to play the CD, making the
`computer vulnerable to virus attacks, worms, and other forms of malware. A
`number of lawsuits, including class actions in New York and California, were
`filed and later settled.
`
`At the root of the Sony BMG rootkit story is the right-holders’ attempt to
`protect copyrighted music distributed on CDs by technological means. While
`
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`8
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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`CDs were initially sold without any DRM protection schemes in place, in
`2002 and 2003 the industry started to implement copy control technologies
`on CDs as a response to the widespread availability of CD burners, which en-
`abled users to copy digital sound recordings onto blank CDs at low marginal
`costs and with excellent quality.
`
`The Sony BMG rootkit example and the above-mentioned story of Fran-
`çoise M. illustrate that copy control technology on CDs has had a series of
`(occasionally unintended) consequences. First, because many protected CDs
`departed from the published standards for CD Audio, they did not work on
`certain devices such as DVD players, CD-ROM drives, portable players, and
`car CD players, causing a type of interoperability problem that was previously
`unknown. Second, some copy-protected CDs – as in the case of Sony BMG
`rootkit – interfered with a computer’s proper functioning by causing system
`crashes and creating security risks for these PCs. Third, the copy controls
`prevented users not only from making illegal copies but also from exercis-
`ing traditional fair use rights, even though it did allow them to make a few
`backup CD-R copies and transfer the music to MP3 players using Microsoft
`or Sony DRM.
`
`Facing interoperability problems, security risks, legal risk exposure, and con-
`sumer complaints, the right-holders started reconsidering the use of copy-
`protection schemes on CDs, and major labels, including EMI, recently an-
`nounced that they would abstain from using such technology on CDs in
`certain markets (especially in the U.S. and UK).8 In other parts of the world,
`however, copy-protection technology on CDs is still employed, arguably re-
`sulting in a CD music ecosystem with limited interoperability.
`
`1.2.2
`
`Online distribution
`
`Online distribution channels accounted for about ten percent of total music
`sales in the full year of 2006, up from 5.5% in 2005.9 The record companies’
`
`8
`
` See Guibault et al. Study on the Implementation and Effect in Member States’ Law of
`Directive 2001/29/EC on the Harmonisation of Certain Aspects of Copyright and Related
`Rights in the Information Society, 2007, p. 177, available at: http://www.ivir.nl/publica-
`tions/guibault/Infosoc_report_2007.pdf. See also Digital Music News, 10 January 2007,
`available at: http://www.digitalmusicnews.com/stories/011007em.
`
`9
`
` IFPI:07 Digital Music Report, p. 5, available at:http://www.ifpi.org/content/library/digital-
`music-report-2007.pdf.
`
`

`

`C H A P T E R O N E State of Play: DRM-protected Music Interoperability
`
`9
`
`digital music sales reached USD 2 billion in 2006 and continues to grow.10
`The music has been distributed over nearly 500 online music services in 40
`countries, run by major content providers, third parties/intermediaries, ISPs,
`content portals, and mobile content suppliers. New online business models
`include digital downloads (e.g. iTunes Store) or subscriptions services (e.g.
`Rhapsody, Napster, and eMusic), including portable versions (e.g. Napster
`To Go).
`
`At present, the large majority of the offerings licensed by the big record labels
`uses DRM schemes to regulate the various aspects of digital music usage,
`including, for instance, the type and number of devices on which the down-
`loaded or streamed song can be played, the number of CDs on which it may
`be burned, or the possibilities of transferring the file to portable devices such
`as cell phones or MP3 players.11 In essence, four main DRM systems have
`been developed and used in the area of digital music, the first two currently
`being the most important ones:
`
`•
`
`•
`
`•
`
`•
`
`FairPlay is the DRM system created by Apple and used by the iPod,
`iTunes, and the leading online music service iTunes Store.
`
`Windows Media DRM, consisting of a number of components, is Mi-
`crosoft’s DRM audio and video scheme for the Windows Media plat-
`form.
`
`OpenMG is the DRM music scheme that was used by Sony until it
`abandoned its online music store in August 2007.
`
`HelixDRM by RealNetworks is a protection scheme for audio and video
`formats that has been used by a range of music and video services, in-
`cluding Rhapsody.
`
`As mentioned, DRM systems also regulate the extent to which digital prod-
`ucts and services interoperate. In the case of DRM-protected online music,
`
`10
`
` Id., p. 2.
`
`11
`
` See also OECD, Directorate for Science, Technology and Industry, Committee on Con-
`sumer Policy, Report on Disclosure Issues Related to the Use Of Copy Control and Dig-
`ital Rights Management Technologies, pp. 5-9 (2006), available at http://www.oecd.org/
`dataoecd/47/31/36546422.pdf.
`
`

`

`10
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`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`many observers – including lawmakers12 and government agencies – have di-
`agnosed relatively low degrees of interoperability. In fact, several major players
`in the online music space have decided to keep their DRM ecosystems and
`platforms closed.
`
`Most prominently, Apple, as the owner of the leading iTunes Store, has re-
`fused to license its FairPlay DRM system to its competitors, including on-
`line music stores and device manufacturers (with the exception of licenses for
`Motorola mobile devices). As a result, its products and music services only
`support DRM-protected content if it is encoded with Apple’s closed DRM
`system. For example, music purchased from the iTunes Store and protected
`by its FairPlay technology can only be played on iPods, certain Motorola cell
`phones, and Apple’s own iPhone, but not on other portable music players
`such as Microsoft’s Zune. Audio files in unprotected formats, in contrast, can
`be imported. Thus, it is possible to rip songs from an unprotected CD and to
`import them into the iTunes library and play them on the iPod.
`
`In contrast to Apple, Microsoft’s initial DRM strategy has been to license
`its Windows Media DRM system to other market players as part of the so-
`called “PlaysForSure initiative.” License holders include online music stores
`and device manufacturers. Among the online stores that sell digital content
`protected by Windows Media DRM are Napster, DirectSong, MTV’s URGE
`and Unbox. Hardware device vendors supporting Windows Media DRM
`wrapped content include, among others, Motorola, SanDisk, Philips and
`Toshiba. Among these players and their services and devices there is a high
`degree of interoperability, but not vis-à-vis other important market forces,
`most notably market leader Apple. Further, Microsoft recently revisited its
`approach to interoperability with regard to Windows Media DRM and its
`Windows Media Player. In particular, Microsoft uses a variant of the Win-
`dows Media DRM for its portable player Zune and the corresponding online
`store Zune Marketplace. Consequently, music that is compatible with Mi-
`crosoft’s PlaysForSure initiative (e.g. music bought in Napster) may not be
`used on its Zune player. Zune software can import unprotected audio files in
`formats such as WMA, MP3, AAC and the like.
`
`12
`
` See, e.g., Hearing on Digital Music Interoperability and Availability before the Subcom-
`mittee on Courts, the Internet, and Intellectual Property of the Committee on the Jud-
`ciary, House of Representatives, 109th Congress, First Session, April 6, 2005, Serial No.
`109-9, available at http://judiciary.house.gov/media/pdfs/printers/109th/20389.pdf.
`
`

`

`C H A P T E R O N E State of Play: DRM-protected Music Interoperability
`
`11
`
`Similar to Apple’s and, more recently, Microsoft’s approach, Sony established
`an exclusive linkage between its Connect Store and the Sony players. In con-
`trast to Microsoft and Apple, Sony also owns a music catalogue; Sony’s mar-
`ket significance in online music distribution is, however, comparatively low.
`RealNetwork’s Helix DRM, the fourth DRM system in use in the market
`for digital music distribution, has been partly made available to third parties,
`such as portable devices from SanDisk; however, RealNetworks announced in
`spring 2007 that it would no longer sell its technology, but will continue to
`support existing customers, including Rhapsody.13
`
`The examples provided so far reveal an online music ecosystem where DRM
`interoperability issues are among its central problems. However, several devel-
`opments should be noted where the DRM interoperability challenge has been
`avoided. First, a subscription-based service called eMusic allows permanent
`music downloads as DRM-free MP3s. Its music catalog consists of over two
`million songs from independent labels. Second, two of the four major record
`labels have moved tentatively away from DRM. EMI recently announced that
`it would license its music catalog DRM-free and at higher sound quality to
`online music stores in return for a premium. Following this announcement,
`iTunes Store has offered DRM-free tracks from EMI at a slightly higher price
`($1.29 per song instead of $0.99).14 Continuing the trend, Universal Music,
`the record label with the largest market share, has temporarily made a por-
`tion of its library available for DRM-free sale on a variety of online music
`stores.15 It remains to be seen how these arrangements will develop over time
`and whether the other labels will follow suite. Abandoning DRM altogether
`would obviously sidestep the DRM interoperability issue entirely with respect
`to online music distribution. Amazon.com, a long-anticipated entrant to the
`online music market that launched a beta version of its music store in the
`US in September 2007, is an interesting case in this context.16 All songs on
`Amazon MP3, including songs from EMI, Universal, and independent labels,
`are available as DRM-free downloads.
`
`13
`
` Rosenblatt, RealNetworks Takes Helix DRM Off the Market, March 6, 2007, available at:
`www.drmwatch.com/drmtech/article.php/3663976.
`
`14
`
` See: http://www.apple.com/pr/library/2007/04/02itunes.html.
`
`15
`
` http://new.umusic.com/News.aspx?NewsId=539.
`
`16 http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-
`newsArticle&ID=1055053&highlight=.
`
`

`

`12
`
`C A S E S T U D Y DRM-protected Music Interoperability and eInnovation
`
`Despite this tentative movement away from DRM, most market observers
`would agree that the current online music ecosystem is still characterized by
`a relatively low degree of interoperability as defined in this study and as far as
`music licensed by the major labels is concerned. The assessment of this state of
`play requires an overview of the benefits and drawbacks of different levels of
`interoperability. This is the theme of part 2 of this paper. In the next section,
`however, we will first discuss some of the key forces at play to gain a better
`understanding of what has shaped the current state and may influence the
`future level of DRM interoperability.
`
`1.3
`Forces at play: Some drivers and inhibitors
`Digital music distribution is a complex system. Technically, it requires the
`implementation and functional interplay of advanced digital technologies.
`Additionally, it consists of a relatively complicated network of market ac-
`tors whose incentive structures are sometimes aligned and other times dia-
`metrically opposed. Apart from m