[LINK] [Fwd: Interesting KPMG report on DRM]

Robin Whittle rw at firstpr.com.au
Sun Oct 6 19:34:35 PDT 2002

Damien Miller forwarded Peter Gutman's cryptography at wasabisystems.com
and cypherpunks at lne.com quote of a KPMG report "The Digital Challenge: 
Are You Prepared?" http://www.kpmg.com/news/index.asp?cid=660 .

   Responses indicate that the media industry has yet to find its 
   footing in the digital age. Rather than embracing the Internet as 
   an inexpensive means of delivering top-quality creative content to 
   the consumer in a highly customized format, industry executives 
   remain mesmerized by the destructive potential of online piracy. 
   Rather than go on the offensive, the industry has hunkered down 
   in a defensive stance. 

   . . .  the industry has shown a deficit of creativity and 
   innovation in rolling out products and services that can compete
   with the pirates. 

I think this is an accurate analysis of a really sad situation.  Like
King Canute, the record companies are devoting most of their thinking
and resources to holding back the tide.

The industry needs to conduct itself so that people *feel like* paying
to purchase recordings rather than muck around find non-licenced
copies.  So the legitimate music needs to be very easy and rewarding to
find and pay for, very easy to download, and unencumbered by encryption,
watermarks etc.

7 years ago I wrote that record companies had to make distinctions
between various kinds of copying, because some is very positive for the
companies and the artists.  Some copying is the best form of marketing
they could hope for, and other copying is simply the purchaser deriving
full value from their purchase.   I wrote that that artists and record
companies needed to make material available on the Net and make full use
of the many new possibilities for discovery, different forms of
"packaging" (why have an "album" when musicians may be producing music
continually, and while some fans will buy a dozen different versions of
the one song?), and far-reaching ability for listeners to interact with
the artists and each other.


One use of the artist's web site is for listeners to subscribe on a
monthly and annual basis to all the artist's output.  This has no
parallel in the physical pre-recorded disc model.  Also, listeners who
pay for the artist's music can be visible on the web site, by their real
name or nom-de-Net - so enabling the possibility of peer pressure to
encourage people to pay for the music they are keen about.  

Net-based discovery and delivery eliminates time-delays, capital
expenses and most of the risk in the old system.  It also makes
advertising less vital, since it would be possible for news of good
music from an new artist to spread rapidly and globally, by
"word-of-mouth" on discussion forums, without cost to the artist or
record company.

The most prominent aspects of the record industry are addicted to
big-selling, mass-market, releases - that is the only way they know how
to make money.  But the Net means that money can be made from the start,
on a modest scale, if the artist's costs in producing the music are
relatively low.

While radio is surely going to remain an important discovery method, the
Net has vast potential for discovery of the music, related material and
for purchasing music 24 hours a day from the comfort of home, without
the intrusive, noisy, distraction of a record store which is almost
certainly playing Muddy Waters on the speakers when you are in the mood
to purchase Steve Reich and vice-versa.

The mainstream, big-company, recorded music industry is clearly
unwilling to face reality, and prefers to paint illusory pictures in
their collective mind, and to try to convince others that these
illusions are real.  The industry - as distinct from the artists - is
made up of a few ex-musicians and lots of percent-men, who muscle into a
niche between a small set of creative people and a larger number of
people who want, or can be induced, into purchasing the artist's
creative output.

In the prior era of almost entirely radio-based discovery (how often do
you hear something you liked and bought in a record shop?) and music
delivery entirely on pre-pressed plastic discs, there are huge barriers
to be surmounted between creating music and selling it to the
potentially millions of people who want to hear it.  My page has
diagrams which depict these bridges for discovery, distribution and

The record industry, with its only half-willing accomplice, commercial
radio, has grown strong by bridging this gap.   But like fashion
clothing, it has found that the only way to make substantial profit is
to have big-selling hits, which are intensively promoted and sold for a
few months before the next hit is wheeled into the spotlight.   This
creates an enormous barrier to the widespread discovery and development
of new music, because the record companies won't press it or push it on
radio unless they think they can sell large quantities, and radio won't
play it if it is too riotous, too minimal, too instrumental or too long
to support advertising.  Consequently the whole history of popular music
has been continually skewed to music which sounds like, or is at least
compatible, with increasingly crass commercial radio advertising.

The musicians hate the record companies, but need them - at least to
ship large volumes of music on pre-pressed disks.   The managers have an
uneasy relationship with the artists and the record companies.   Record
companies and artists are almost utterly dependent on radio as the
initial form of discovery, so they want radio to play whatever new CD
they have just released this month.   But radio sees the music industry
as an almost free source of stuff to entice listeners with - and only a
subset of listeners who are valuable from an advertising perspective are
interested in listening to whatever the record industry is pushing this

So, since about the 1930s, a complex, risk- and capital-intensive set of
bridges has been built by the record industry between artists and
listeners - with radio a crucial and only marginally willing

Now the Net, in principle (if it wasn't for speed and cost restrictions,
and the fact that it is usually not as easy to access in mobile
situations such as when AM/FM radio is perfectly convenient), enables a
*direct* discovery, feedback and purchasing link to be made between
artists and listeners.   Even if the artists don't run their own web
site, whoever runs their sites for them faces minimal costs and risks
compared to the old system.   This is 24 hours a day, irrespective of
radio propagation limitations, two-way, enabled for commerce and
browsing.  It completely bypasses everything the record company has
built.   However, I still think that if someone is going to sell a
million copies of their music, then pre-pressed discs will be a
significant part of that, and only record companies know how to do this
on such large scales.

The new system does not rely on commercial-radio compatibility, or even
the listener having the same language as the artist.  There are no
stylistic biases as bedevil the current situation with older record
company and radio people trying to anticipate the next trend in young
people's music fashion.   The new system has nothing to do with fashion
or gatekeepers at all.

If the record companies were smart, they would dive into this - after
recognising their old game is made partially or largely irrelevant.   If
they were smart, they would aggressively pursue Net-based discovery and
sale of all their artist's music, recognising that this is a low-cost
way (compared to pre-pressing and distributing disks, advertising and
payola) to develop and modestly profit from the zillions of artists who
are developing their music and who are outside the spotlight of whatever
is currently "fashionable".   To some extent, with a few freebie MP3s, I
guess the record companies have done this.

But the record companies first have to get over their immense fear of
people copying music.   Its going to happen, and the best way to reduce
the damaging copying is to build trust and respect with potential
purchasers to minimise copying which is bad for the artist and maximise
that which is good.   

Unfortunately, since all these issues became apparent around 7 years ago
(although I did not anticipate MP3 compression ratios - that was about 5
years ago) the mainstream record industry has obstinately clung to the
notion that it must make digital music impossible or impractical to
copy.  But it is easily shown that this is impossible:   If the music is
to be delivered, in full fidelity, to the consumer - the consumer can
copy it.  All attempts at encryption, weirdo file formats etc. are
useless to stop this - because the output of the system can be
recorded.   The other approach is "digital fingerprinting /
watermarking".  There's a lot of crap written about this by various
proponents.   If you can hear the watermark, people won't buy the
music.  If you can't hear the watermark, then perceptual compression
systems such as MP3 will strip it out or weaken it without affecting the
music.   What use is the watermark anyway?  Are record companies really
going to prosecute purchasers?   That would be madness, the best way of
destroying trust and the desire to purchase - but it could happen.  I
wrote about the folly of watermarks in 1997:


 - Robin

    http://www.firstpr.com.au     http://fondlyandfirmly.com

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