The DRM Distraction: Part I

Reality Refresh
Having looked closely at the publishing industry for the past few months, and having worked in both the software industry and the film industry at various times over the past two decades, I’ve come to a few conclusions about digital rights management (DRM). The most important is that there is no clear-cut solution to the question of piracy, and anybody who tells you they’ve got it all figured out is working their own angle. And that includes Cory Doctorow and me.

Like the subject of abortion in the political arena, DRM is injected into every conversation about content ownership and distribution whether it’s directly relevant or not. If you don’t say the right things to the right people about DRM you risk associations and opportunities that might be of value, not because you’re wrong on the merits, but because you’re giving aid and comfort to the enemy by implying that they are not pure evil. At the same time, those people who don’t buy into a black-and-white view of DRM will think you an idiot for not using the impassioned nuts on both sides to your own advantage.

The correct answer to questions about DRM in the current context is not to be suckered into a debate about technological solutions or the prosecution of college students, but to educate and evangelize about the problems that drive the implementation of DRM technology in the first place. Although most end users who pirate content do so as individuals, the collective effect of these individual decisions hurts copyright holders and content creators in very real ways. Yes, some piracy may be sticking it to The Man, but it’s also killing artists that people apparently want to read, listen to and watch.  

It may be old fashioned to talk about morals and fables and such in a culture that travels at fiber-optic speed with both eyes on the vanity mirror, but killing the goose that lays the golden eggs is generally believed to be a sign of stupidity. Given that more and more artists are moving away from conglomerate deals and striking out on their own, cultural kleptomania can no longer be seen as rebellion against corporate greed, but must be seen as a self-defeating act. Steal enough and at some point there’s nothing left to steal.

Which is what I was thinking when I read the following in a Gamasutra article about piracy in the iPhone app store:

When indie game developer Bram Stolk detected 1,114 copies of his The Little Tank That Could being played online, he suspected something was up. He had, in fact, sold only 45 copies of the new iPhone game.

Stolk had fallen victim to what is being called rampant piracy in iPhone titles, possibly worse than has been experienced for so long on other platforms because of the ease with which it can be perpetrated.

Indie developer Smells Like Donkey has been quoted as saying that more than 90% of users of its recently released iPhone brawler Tap-Fu were playing pirated versions.

And, in a talk at GDC China in Shanghai, Alan Yu, VP at San Francisco-based ngmoco, characterized piracy on the Apple handheld as a big issue, with 50 to 90 percent piracy estimated in the first week on ngmoco titles.

What’s the net effect of this kind of piracy? Nobody knows:

On one thing, everyone agrees — it is nearly impossible to determine the financial impact piracy is having on developers. For that reason, many developers take the “ostrich” approach — because they don’t know how badly they are being hurt, they don’t worry about it.

This “‘ostrich’ approach” inevitably affects decisions about the wisdom of producing content when it can so easily be pirated. So, too does the apparent truth that most stolen games would never have been purchased if they were not available free, meaning piracy stats cannot be equated to lost sales. Then there’s the personal love of creation that drives most game developers (as well as authors, musicians, etc.). Giving up would mean quitting on their passion, and that’s tough for anyone to stomach — and doubly so without conclusive data.

The Fog of Business
What neither side of the polarized DRM debate will acknowledge is that there is a clear absence of reliable information regarding the effects of piracy in every respect. The reason neither side will acknowledge this is because it’s in the netherworld of hype and paranoia that the mischief really takes place. There is a truth about the effect of piracy, but because that truth is unknown the available data can be used to support every conceivable argument from any point of the compass. Theft is bad because it discourages innovation. Theft is good because it demonstrates innovation. Theft is bad because it decreases sales. Theft is good because it increases market share and brand awareness — and thus, inevitably, sales.

As a result of all this noise, content providers continue to squeal for DRM, content developers soldier on with their heads in the sand, at least in the short term, and piracy continues unabated. But despite the uncertainty and the rhetorical demagoguery on both sides of the issue, there are lessons being learned, and those lesson are particularly useful to the publishing industry, which is coming to all of these problems much later than the music and software industries. For example:

Pinch Media had considered selling anti-piracy protection but decided against it.

“If all developers were to implement the same anti-piracy scheme,” says [Greg] Yardley, “all the hackers would need to do is figure out how to circumvent that one scheme. Instead, we urge developers to come up with their own anti-piracy solution and most do that by inserting some sort of check directly into the game itself.”

Despite uncertainty about the effects of piracy it is possible to learn things that make DRM more effective. In this case, at a theoretical level, any proposed DRM solution should contain multiple ways in which DRM can be implemented and authenticated, and those solutions should constantly evolve. Independence in DRM is better than industry-wide compliance. Industry-wide coordination of independent DRM initiatives would be even better, and particularly so if the objective of the coordination was to increase the technological workload on pirates.

But note: even this kind of useful, actionable knowledge is tangential to the actual problem of copyright protection and theft, because there are two underlying factors driving wanton piracy. First, there is the behavior of individuals who steal. Second, there is the profit motive of people who provide individuals with stolen content.

The business model driving content piracy is the same business model that drives all piracy: making a profit is easier if you pay little or nothing for your products. Your average businessperson thinks about A) gathering resources for a product, B) manufacturing the product, and C) selling it. The average thief lets someone else do ‘A’ and ‘B’, at which point the thief steps in and takes care of ‘C’ — and from a pragmatic point of view it’s hard to argue against this approach. If it weren’t for legal prohibitions and enforcement of same, theft would probably be the dominant business model world-wide, at least until everyone realized that doing ‘A’ and ‘B’ was a sucker’s game. (Note that this model applies equally to both illegal content pirates and legal-but-abusive industry practices.)

The motivation for content piracy, however, varies. At the macro level, economic profit is still the motivation. People who traffic in stolen content do so to make money, despite any rhetoric they or their users may toss around about liberating hostage content from totalitarian corporations. I don’t have any data in support of the following assertion, but it seems self-evident to me that large-scale efforts to pirate content are not being undertaken at a loss.

At the micro level, however, the motivation is not as clear. While individuals profit economically by not having to pay for content, they also profit in other ways when using pirate sites. Again, the data is murky here, but there is a compelling argument that ease of use factors into piracy at the micro (individual) level. In a nutshell, it’s often easier to find and download pirated content than it is to find it and buy it via legitimate means — yet even this statement needs elucidation.

The Ease-Of-Use Opening
When an individual seeks out content on the internet there are two barriers to acquiring that content if it is not already free. First, there is the problem of locating the content; second, there is the problem of paying for the content. Pirates are a big step ahead in the ease-of-use battle because they don’t ask users to pay for the content that users are stealing by proxy. Yes, pirate sites may damage or destroy the computers of users, or load them up with malware, viruses, and other hostile content, but in terms of facilitating ease of use they’re all about making the customer happy.

Unfortunately, it’s not possible to make something as easy to purchase as it is to download. Amazon, with its preposterous one-click patent, which has been all but thrown out, came close. iTunes, another successful online retailer, uses much the same minimalist system. But even if a purchase is reduced to a single click — which is what a download from a pirate site requires — there’s still account maintenance and financial reconciling to deal with (“…the kids bought how many songs…?).

Providing the customer with ease of use in locating content, however, presents pirates with a considerable problem, and law enforcement with its best chance for interdicting stolen content. In order to attract the most users, sites that provide pirated content have to make themselves more visible on the web. Since for-profit pirates trafficking in stolen content in other locales are doing the same thing, pirates must compete for market share by providing more and more stolen content on their own sites, further raising their profiles and increasing the risk of a more focused assault by parties that might be opposed to their enterprise.

On the law-abiding side of the equation, sites like Amazon and iTunes work hard to make sure that they are a one-stop shop for content, and as of this date their inventories only continue to grow (and increasingly overlap) as a result. Given that both sites have minimized the purchasing hassle and maximized the available content, it’s not surprising that they are leading brands in the digital content business.

A Recipe for Success
Amazingly, from these simple observations we can postulate a workaround to the problem of stolen content without actually wading into the DRM thicket. Here’s how I framed the issue in a related post a couple of days ago:

2) Get past the DRM distraction. The world is awash in petty thieves and the cultural mores of the moment are against you. This means you should:

A) Stand on principle and litigate.
B) Give your stuff away free.
C) Make your stuff cheap and readily available so you undercut the two main motivations for stealing. Later, when computer tracking of content is more robust, you can go on a government-backed anti-piracy rampage and jail expectant mothers.

The correct answer is: obvious.

As an immediate and effective response to piracy, ‘C’ is the publishing industry’s only option. The music business has slowly come to this same conclusion, after spending fully a decade failing to make the DRM/litigation solution pay off. In any event, focusing long term on ease of use addresses both the for-profit piracy problem and the end-user theft problem because it obviates the utility of piracy as a means of acquiring content.

In sum, where DRM theoretically makes piracy more difficult for traffickers and end-users, yet almost always fails in practice, focusing on efficiencies in ease of use produces demonstrable practical benefits that can be sustained. For all content-related industries the recipe is clear:

1) Make your content as easy to locate as possible. Emphasize the quality and consistency of your product as compared with pirated content.

2) Make your content as easy to purchase as possible. ‘Easy to purchase’ includes both transactional barriers and pricing barriers.

3) Go after pirate sites that traffic in stolen content, and forge ongoing alliances to keep the pressure on. Inter-industry alliances will prove particularly effective.

4) Keep your eye on DRM solutions, but wait for them to mature. You will know that they have matured when they are fully transparent. (More on transparency in Part II.)

Price is an Object
If you think you should charge the hardcore price for a digital download of the same book, you are a fool. If you think customers are going to pay that amount, you are a fool. If you think customers do not factor in your costs when they make a purchase, you are a fool. If you think customers do not know that you can create and sell a copy of a digital file with no effort whatsoever, you are a fool.

I don’t know the specific costs associated with the production of a typical hardcover book. What I do know is that it takes a certain amount of money to make each copy, because each copy requires the same parts: paper, glue, ink, cover stock, etc. Throw in labor and packaging and all the other niggling little costs, and I know that somebody had to lay out cash to create that product, even after all the content had been created.

None of that is true with a digital file, and I know it. And there is nothing you can tell me that will convince me otherwise, because I have myself copied document files on my computer. Even my mother knows this is true and she doesn’t own a computer.

I understand you cannot give content away. I have reached the same conclusion myself about writings that I would like to bring to market. The question, then, is how to price digital content.

Over the long term the question will obviously answer itself. Sooner or later, when taken in sum with ease of use improvements and anti-piracy efforts, consumers will embrace the purchase of digital content at some specific price point. The iTunes store has already demonstrated this eventuality in the music industry, although there may be continued movements in generic per-song pricing.

This inevitability, however, does not preclude motivations for keeping the price of digital content artificially high. If you are a nostalgic protectionist you will want to keep digital content prices high in order to force people to sustain your dying hardcover business model for yet another year, month, week, day, hour or second, depending on when it is you happen to be reading this. To help achieve this goal you might argue that digital content can only succeed with bulletproof DRM, in which case the subject of DRM and its not-ready-for-prime-time status becomes your ace in the hole when arguing against all things digital. I.e., since DRM is not available to protect digital content, there should be no digital content.

This is, of course, full-on clinical denial, but it’s also another distraction-motivated reason why people keep talking about DRM. In this case the objective is to use DRM as an excuse for slowing or halting the expansion of digital content. The people making the argument know this — they know that reliable DRM is not waiting around the corner — but from their point of view that only makes the argument more compelling.

From my point of view the argument is meaningless, because the internet is here and piracy is happening and customers do want digital content and DRM is not ready and none of that is going to change. These new market truths are effectively permanent, even if they will inevitably evolve in the future.

The New DRM
The only relevant question now is the price point of content in each affected industry. Where is the break-even? And I don’t mean the break-even using the old business models, where content supports massive distribution pipelines and corporate hierarchies ten rows deep. Rather, I mean the break-even that supports content production, digital distribution and an ease of use paradigm which undercuts current end-user motivations for pirating content.

(As an aside, these two definitions of break-even explain the pricing disconnect between big-box and online retailers and the publishing industry, where retailers are determined to drive prices well below what the current publishing industry can sustain. The inevitable conclusion is that the publishing industry must cut costs, and the only way to do that long term is to move to digital content.)

While it’s true that effective pricing will inevitably be revealed by market forces, regardless of the willingness of the players involved, waiting for this information is folly — and doubly so if you’re gambling on DRM solutions but unwilling to test price points. Every dollar spent on a DRM solution that will ultimately (if not easily) be defeated is a dollar that could be risked on various price points that speed maturation of the market for digital content. Spending money to protect content with DRM is a constant cost and may deter sales; cutting prices deters piracy anddrives sales.

Again: you know you cannot give your digital content away for free, you know you cannot charge retail for digital copies, and you know you cannot make DRM work flawlessly. The only variable you can manipulate that will affect both legal sales and illegal pirating of your content is price, which effectively means that price is the equivalent of DRM.

Truth is the first casualty of any DRM conversation, however, so it’s not surprising that otherwise smart people forget that the only profitable business model is one that actually works. DRM advocates insist that workable DRM is either here or just around the corner, but there is no profitable digital-content model that protects the publishing industry’s current business practices regardless how DRM is implemented.

Which brings us to the crux of the matter. DRM as advocated for by publishing industry professionals is not about piracy, it’s about protecting a business model that cannot be saved by any other means. All of the traditional methods by which businesses sustain themselves and evolve have played out, leaving only two choices. Either embrace the technological, pricing and distribution changes being driven by digital content on the internet, or throw up as many roadblocks to those changes as possible and hold out as long as you can.

Prices in the publishing industry will inevitably come down because the publishing industry must embrace digital content to survive. Forward-looking companies will spend heavily on pricing strategies and tactics in order to find the consumer’s ease-of-use sweet spot for digital content. Backward-looking companies will spend heavily on DRM as a means of protecting the past, and in doing so will learn nothing about — and potentially even antagonize — the customers that will decide their fate.

— Mark Barrett