Happy New Year to all of you.  Here on this page, we have been discussing content distribution and protection issues for two years, beginning in January of 2007. Our core story has been that there is a tremendous business opportunity for content owners in digital distribution, and that watermarking is the enabling technology, and that SmartMarks, USVO’s watermarking technology, is a great choice in watermarking.

Most of the news so far this year is very negative, but there have been some bright spots. Chief among them was Apple’s announcement that it was dropping DRM from its iTunes store. Nearly two years after Steve Jobs wrote an open letter to the world on his “thoughts on music” in which he criticized DRM, the company has worked out agreements to eliminate it from the world’s single largest music store.  It is important to note that the very companies that it took this long for Apple to work out DRM free licenses with, had already allowed DRM free sales at Amazon.com and Play.com among others, for over a year. 

One doesn’t have to dig too deeply to see a number of agendas and issues being played out here, but for those looking forward to, and investing their efforts in a world free of transaction blocking, customer hating, inhibiting prevention oriented applications and thinking, this is a landmark. One challenge in the watermarking space is to distinguish it from DRM, so let me state once again that SmartMarks are not DRM, but rather an enforcement approach to content security.

As stated in these pages time and again, the key to leveraging digital technology for content distribution is trust. All of us prefer to deal with entities we know and trust, and for as long as the motion picture industry has existed, it has not trusted new technology or its customers with that technology. As a result, it has not benefited from the power and cost effectiveness available there. 

Instead suspicion has been the dominant thinking. If theft was possible, it was probable, even though the vast majority of computer enabled customers just wanted the content as conveniently as possible.  Until iTunes was rolled out, that convenience was supplied by various pirate services. Because of its success, iTunes has become the flagship of a slowly modernizing music industry. So the dumping of DRM from that ship is clearly worth the headlines and analysis given it.

A great summary of web reactions was published at Billboard magazine, the trade paper of the music industry. Opinion varies, but in all cases the impact is considered significant. At the Boston Globe, the judgment is right in the headline, “Apple’s iTunes changes may show digital rights management’s a loser”

The chip heads have dug in and have investigated the details of the execution as well, and pronounced their own judgments. This too bodes well for watermarking, because while the songs are now DRM free, they are not without some security. Turns out that Apple is making each download traceable to the email address registered to the iTunes application that downloads the song, whether that is on a computer or the latest channel for delivery, the Apple 3G iPhone.  While a savvy user can be expected to work around this, as they have much of the restrictive aspects of iTunes, the model for enforcement strategy is in place at the world’s largest music retailer.

While it is nearly a decade that the motion picture folk have been saying that they aren’t going to do what the music people did, and have done just what the music industry had done, there are still those saying that DRM free video downloads won’t ‘ever’ happen. But the cognoscenti are already calling for DRM free video. Driving this demand is the need for new sales- “But until the day consumers can buy content once and move it to any device they want, the market for purchasing video content won’t see the kind of growth that many of us in the industry have been waiting for.”

And this is the big promise of the decision. For the first time, in a well established marketplace, vendors can watch how DRM free content sells. This is the beginning of the DRM free era in content. We should expect more theft, a number of new schemes for cost avoidance and more. But key will be how much new business Apple can do now that one of the restrictive aspects of the iTunes/iPod/Apple silo has been deleted.

Welcome back, and expect to see more comments in the days ahead as the pressure on content distribution companies create new opportunities, especially for strategies that are targeted on new sales.

Another subject that we have covered previously, but that bears repeating in view of some recent announcements regarding the motion picture industry.
The business model that has served Hollywood is under siege.

Since the beginning, Hollywood decided what the public would see, and when it would see it in what venue. Today, digital technologies have made it possible for the public to get used to the idea that when and where, and increasingly, what, is up to them.

This stress, if you will, has been around for about a decade now. The music industry gave a tutorial on what not to do, yet the MPAA has cribbed many of the pages from the RIAA playbook. Based on the availability of pirated titles, both in physical and digital forms, these efforts are failures.

Being able to market and launch a ‘property” in the theaters, and then sequentially release it to wider and less expensive to the consumer channels over a period of time is how Hollywood has made a profitable industry out of a segment in which there are always more losing products than winners. Thanks to this ‘windowing’ model, even losers like “Waterworld” eventually return on the investment. (“Waterworld” eventually broke even thanks to licensing for games, theme park attractions etc). At least that is the thinking that continues to search for a way to have ‘display without capture.’ This last phrase is shorthand for the idea that we can show your eye a movie while making it impossible for there to be any kind of recording of it, or theft of the source that showed it to you. This is a modern holy grail, except that there is nothing ‘holy’ about it; just wishful.

Meanwhile new ventures are grabbing the shelf space in that modern geography of the internet. The studios, being part of multinational corporations, are buying those ventures in whole or part to hedge their risks. But neither the acquisition of such outlets, nor the selling of movies online suggests that the solution to the fundamental problem of answering the challenge to the business model has been met.

USVO’s SmartMarks offer an alternative. Engage the marketplace in ways that let people watch what they want when they want, and trust them to do just that- watch. Embed proof to catch the crooks- the people that steal to make their living off the investments of others.

IF your neighborhood school isn’t yet in session, the local high school football team is probably in two a day practices.

So is the USVO team. That keeps us from doing the detailed coverage of the content distribution and watermarking spaces as we have in the past. But each week I want to take a moment and point out some highlights before summer really ends.

This week, that would be the announcement that CableLabs has signed agreements to roll out a new protocol for a DRM that will let consumers move video content around a home network. “Called DTCP-IP (Digital Transmission Copy Protection), the new spec will use DRM to lock down content to ensure that it doesn’t escape the cozy confines of cable subscribers’ homes.”

The good news is that the industry is trying to accommodate consumers so they handle digital media the way they used to handle a VHS tape or a DVD disc. This will be accomplished through more added complexity and cost to a number of participants in the system of entertainment delivery, including box makers, network providers and ultimately consumers.
More good news is that many of these schemes will leverage the efficiencies of network delivery and thus be great candidates for USVO’s MediaEscort product.

The bad news is that the dreaming for a silver bullet technology solution to the problem of theft still dominates the leadership. Cablelabs has a long history of successfully creating agreements among players with differing agendas, and they become another player in exploiting the hopes of a content industry wishing for magic.

Experience shows that the solutions to theft will need enforcement cycles to generate real costs and risks for pirates. For the forces of watermarking, the DRM dreams are a continuing frustration as we work to break through with this wisdom.

It isn’t that there isn’t any news going on in the content distribution world. Today’s Google search on the word yields nearly 170 items over the last week. The lack of activity here is much more due to the worker bees of USVO being hard at implementation and sales.

The environment is shifting, however slowly and at a pace that seems glacial in today’s networked world, and even climate change is accelerating glacial processes. Over the next quarters, expect to see further evidence that the majors are not giving up DRM, but they are looking to find ways to implement multiple strategies, which include watermarks, like our SmartMark products.

We might be quiet here, but it is out of effort, not idleness.

At the previously mentioned LexisNexis ( and Variety) Digital Rights Management Conference in Los Angeles this week, probably the most significant appearance was by Dan Glickman, the Chairman and CEO of the MPAA.

Glickman took over the position from Jack Valenti, a national asset whose reputation and hair survived over forty years and mis-steps like calling the VCR a ‘dagger in the back” of the industry. Valenti passed away yesterday and be sure to read the many praises for the man who brought us the ratings system. A remarkable life, which included being present at Lyndon Johnson’s swearing in as President on Air Force One, Valenti’s career in Hollywood covered an era of incredible changes in all aspects of the business.

Like Valenti, Glickman, brought the experience of life in the political cauldron of Washington DC to the MPAA. His childhood and business life in Kansas as a scrap metal operator being of far less interest to the studios than his nearly 30 years in various jobs in Washington, including nine terms in the House.

His speech brought all those well earned politics to bear on the challenges facing the motion picture industry today. His positive pronouncements included “If ever there was a time to think big, this is it” and “We wholeheartedly support allowing customers to make authorized copies of the content they purchase”. What I like best is that he actually called them ‘customers’. Usually the public that fuels the multi-billion dollar business are ‘consumers’. He called them that too later in the talk, but it was good to see the customer designation. Also, he clearly sees the potential of the technology revolution to expand the options for entertainment, and wants to make sure it happens on the studios terms.

The complete text is here on the MPAA site for those who enjoy reading four pages of politically smooth speech. Note the historical references. In classic USA provincialism, Glickman has Edison as the inventor of the motion picture camera, a statement sure to endear him to the French, among others.

Some thing to take away- DRM is going to be pushed for quite a while. Not only did the MPAA, and its constituent studio members pony up a $30 million ante to open MovieLabs, they put it in Palo Alto. DRM has up to this point been something that Hollywood wanted, and Silicon Valley and the CE industry paid for. Getting further than where it is now required something extra, and so the industry followed the cable industry model of CableLabs, which has successfully developed standards and practices that extended the reach of the cable operators, to say nothing of their profit options.

The flip side of this was published, coincidently in Variety. It speaks directly to the issue of trust in the relationship between the distributors and their customers. The lead “Young people prefer to download film and music illegally because they don’t think that the biz is capable of giving bang for their buck.” States the problem pretty clearly. The failure to address piracy on the value exchange basis is probably more at issue than any other.

Equally interesting in the study- Sony is the company most respondents thought of as bringing them entertainment. Neither Apple nor YouTube, or the other online sites, made this list.

I apologize for the break in posting. It has been a very busy spring as the vacuum created by the presumed demise of DRM has created the beginnings of a vortex about watermarking. Whether you are tracking the government, the business press, or the many tech pundits, the tone and number of items about watermarking took a spike this month.

It wasn’t overload, or being at a loss for words. Rather it was the strange set of illnesses that seem to come with the change of seasons, and the NAB convention, where the broadcast industry gathers annually to trade smoke, expense account meals, and kick tires on the various technologies that constitute the production and distribution pipelines.

Several things need to be pointed out, some of which have been stated here before, but bear refreshing. First of all, many observers still seem to think of watermarking as a DRM scheme. While it certainly could be integrated or integral to a DRM solution, in our view, watermarking is a distinctly different and independent approach. Both in terms of values and technology, watermarking is an enforcement strategy, not a prevention one.

Another is that the marketplace for watermarking is years younger than that for DRM.

DRM has years of investment for some really simple reasons, while watermarking has not. The first is that the content distribution industry has generally enjoyed a technological boundary to theft. In the analogue era, if you didn’t have a 35mm projector, having a print was pretty pointless. The physical nature of distribution made the price of entry into any sort of theft made piracy a fairly contained risk. When video and then digital tools first arrived, they were still relatively expensive and complex. In the last decade has it become cheap and easy to scale quality pirated content. Even then, it has been natural to imagine that the very technology that enables the theft would also enable a silver bullet that would make it impossible to steal.

Except it doesn’t. That hasn’t stopped the entertainment industry from pushing the consumer entertainment and IT industries from spending a lot of time and money creating and deploying a lot of complex technologies that resulted in more expensive less capable gear that frankly isn’t even holding back the flood of unauthorized duplication and transfer of copyrighted content.

With this kind of investment, both financially and emotionally, it is going to take more than Steve Jobs saying it should go away for DRM to collapse. If you have doubts, just check out this agenda for a Hollywood high level Digital Rights Management Conference. See who is speaking? With a registration fee of $699 for the webcast and sessions on “The Government’s Impact on Digital Rights Management” this is not the meeting of a retreating army.

Something else conspires against the ‘bull market in watermarking’ that Om Malik, ‘founder and chief blogger’ for GigaOm Media., is looking for. That is the fact that the value of enforcement is still a cost.

When you wire your home for an alarm and subscribe to the service, you aren’t expecting to see a multiple of that cost show up in the appraisal of your home. When you insure it for fire , it is because there is a known risk that you are preparing for. For some reason this kind of thinking is not applicable in entertainment distribution because a loss estimated at $18 billion annually isn’t anything like their house burning down.

In fact it isn’t even like having a bad water leak. When you have a leak, you might have a flood, or have to swim through your basement or something like have a floor collapse when a leak saturated a structure. But nothing like that happens when an enterprise pirate takes a pristine iteration of your product, produces a quality rendition and goes to a market that you are overpriced relative to the wages of the population, like say the slums of Mexico City. You just don’t feel that as pain, the way you do when your house actually burns down.

Combine the two – no real pain and the myth of the silver bullet- and you have the right combination of factors to support denial and BAU (business as usual).

I try to pace this, as I appreciate that you all might have regular stuff to do, and not be as absorbed by the issues of content distribution as we are, but I have to point out the comments made yesterday evening by ‘Mike’ of Techdirt staff about the DRM session at the Silicon Valley Tech Policy Summit.

Techdirt makes its living collecting and delivering information. They cover a wide range of topics, as their current homepage shows articles on auctions as a technique to solve urban parking, for instance. So their correspondent at the TPS came out pretty strongly on the DRM panel yesterday afternoon (3:45PM PST). ” the MPAA representative, David Garfield, kept saying over and over and over again that DRM was important because it opened up new business models. Yes, we’ve heard this all before. We’ve been hearing it for years, and those business models aren’t forthcoming. When that was brought up, all Garfield and the others could say is to give it time. Unfortunately, people have been giving it plenty of time and all they have to show for it is that they feel like criminals in their own homes for doing something that’s perfectly legitimate, and worries about what MPAA-pushed legislation will invade their technology next.”

And “It was a stacked panel (again). Gigi Sohn was there as the sole defender of consumer rights and fair use, but missed out on multiple opportunities to points out that the DRM everyone else was defending wasn’t just about a fight between content producers and consumers, but that it was simply bad for business.”

Yep. Bad for business.

What’s even better, from my point of view, is that ‘Mike’ (there are three listed Michaels on the “who we are’ page) also has written about just what it is that entertainment is. “Everyone may think that you’re buying “music” or “movies” but that’s very rarely what you’re actually buying. You’re buying the experience of going to the movies. Or the ability to have the convenience of a DVD. Or the convenience of being able to listen to a song on your iPod. And, in many cases, it’s not just one thing, but a bundle of things: the convenience of being able to hear a song in any CD player, combined with a nice set of liner notes and the opportunity to hear a set of songs the way a band wants you to hear. It can be any number of different “benefits” that people are buying, but it’s not the “movie” or the “music” itself that anyone is buying. “

Unfortunately for the industry, Mike isn’t supplying the MPAA and other leadership with his insights. That is up to us, and I don’t just mean USVO. I mean everyone that has an interest in a lively and uninhibited content marketplace in the digitally networked realm.

So get your drums out, or even pots and pans. Tell everyone you know that you want content to flow and be protected. Tell them you want to be presumed innocent when you buy and use content, and that you want the content owners to focus on people who are actually stealing their stuff.

PS_ Check out the comments section on Mike’s post

There is growing understanding of piracy’s impacts as reported in the LA Times, by Richard Verrier.. The city of Los Angeles funded a $25,000 study that found the local motion picture economy lost“$2.7 billion” and, in nine sectors, including apparel, more than 100,000 jobs due to counterfeit and pirated goods.

Over the last week there has been a great deal of attention and discussion about piracy, DRM, and just how the major content distributors are relating to the viral video sites. Viacom both pulled its content from viral leader YouTube and announced an agreement with Joost, the fledgling service from the founders of Kazaa and Skype.

Equally interesting, the CEO of Macrovision challenged Steve Jobs to engage in the work that will make DRM interoperable and transparent. Clearly Jobs open letter has galvanized the concerned to step up. Unfortunately in this case, the source is also an example of a cracked technology. Macrovision’s DVD security, for which many distributors pay about four cents a DVD to add, has been hacked for some time. Since the license fees are still coming in, there hasn’t been much pressure on the company to rework the code, as it still prevents the average user from making a VHS or duplicate DVD.

Another interesting development is the word that YouTube will only offer protection technology to distributors that it has license agreements with. According to the report “YouTube, owned by Google Inc., plans to introduce technology to help media companies identify pirated videos uploaded by users. But the tools are currently being offered as part of broader negotiations on licensing deals.” I find it fascinating that a company that makes money by making content available for free is going to only allow those it has money transactions with get protection. Consider this a step in the negotiation more than a policy.

However there are a few minds that are keeping the priorities straight. As David Card of Jupiter Research reminds us “Content isn’t king, Audiences are.”

By far the most interesting bit of thought available was this piece “Piracy isn’t the only enemy” by Glen Gamboa, the music writer of Newsday. Content distribution business is challenged for many other reasons, He compares the distribution of music with that critical component of living- water. “Sure, water is essential to life and music isn’t. But you can live without bottled water. You could, you know, turn on the tap or stand at a drinking fountain. Sales of bottled water continue to grow because marketing has created a need and distribution has filled that need in the way consumers want.”

This is the real opportunity for content distributors, to exploit the phenomenal opportunity available in the digital networked world to fill the customer’s needs in a way that the customers want. Note that I say ‘customer’ instead of consumer, because there isn’t one of us that thinks of ourselves as part of a demographic. We all have our own identity and our particular wants and needs, and that sense of who we are is a very big part of why we buy what we buy.

Imagine the content distributors using CRM, or the as yet to be developed VRM to actually converse with the marketplace as customers, and let customers not only say what they want, but what they are willing and able to pay. Imagine that the content they get they can use the way they want, and there won’t be technical hurdles to navigate between their bedroom and their family room. Imagine that the customer begins to feel that the distribution company knows and understands what they like and actually steers the appropriate product to them, like a trusted friend who happens to sell at the corner market.

First there needs to be an understanding that while fear of the dangers is understandable, building a business strategy on it has been proven to be disastrous. As pointed out here previously, trust and relationship are the critical ingredients in every marketplace. Why we think SmartMarks and watermarking in general are key ingredients to that we articulate in detail here.

There are going to be a lot of chapters in this emerging marketplace, and it is important to keep in mind that the way we get our products, especially our media products, is ultimately going to be decided by how people like to buy and use, not how distributors like to sell and control that use. There is no business that can afford to ignore what its customers want, even if the customers can’t articulate it. They vote with their money, and as the music business shows, they have been buying DRM even less than they are buying formula pop.

Steve Jobs, Apple CEO and the largest single stockholder at Disney, made worldwide headlines yesterday by posting an open letter to the world on his “thoughts on music”,

Quotes like “DRMs haven’t worked, and may never work, to halt music piracy.” and “If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store.” are big news coming from a guy who has up until now shown every intention of locking every Apple user into the Apple farm silo. Equally revealing is the Apple research stating “under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM.” In other words the sales of music is a side bet to Apple compared to the iPods, and something he is now trying to spin as hamstrung by the record companies. Most of us are loading our players with CDs we got some other way, hopefully legally.

The big type extracted in most places is his call to end DRM. The instant response from Norway, where Apple has been put on notice that they must open up the iTunes store by October 1 or face legal action, seems to think this is just Jobs “skirting key issues and passing responsibility to record companies.” Torgeir Waterhouse, senior adviser to the Consumer Council, told The Associated Press “It’s iTunes Music Store that’s providing a service to the consumers and therefore has the responsibility.”

The shift in consciousness in the Hollywood majors to engage in digital distribution has been, IMHO, based more on a fear of being left out of the digital marketplace finally being greater than the fear of being in the digital marketplace. I date this shift with Jobs getting his position on the Disney board as part of the Pixar acquisition. They still haven’t decided on how it will work.

It is still a long way from the death of the pursuit of the DRM dream of making theft impossible, much less the full enabling of frictionless transactions for digital content, especially from the major companies. Don’t expect the Big Four of music to fold their strategy just because Jobs and Apple suggest it.

Compared with the existing marketplace and delivery methods, the amount of attention given to viral video, YouTube, and its variants, and the rollout of online services from the likes of Wal-Mart, is out of scale with the financial realities. Until pressures are so great from losses of revenue, and one would think the music business had experienced sufficient pain five years ago, the struggle to maintain control of the audience will persist. As Jobs points out, these four companies “control the distribution of over 70% of the world’s music.”

The field is still green, and this is why the reaction is so large. We love the future, and guessing about it. Just like betting on who will win the Super Bowl, or an election, a lot more people today are talking and thinking about DRM, open sales, and interoperability than they were on Monday. However with this game, you can keep on betting week in and week out until the field is plowed planted and owned by the winners.

In contrast with the outright frozen with fear posture that dominated for several years, the recent activities, including USVO’s recently announced project with a major studio, are major steps forward. The opportunity for a frictionless enabler of copyright enforcement like SmartMarks is certainly enhanced by this movement in the public discourse. The game is definitely changing, and thanks to Steve Jobs, more on the minds of the public than ever before.

Here and elsewhere you can find plenty of debate about DRM. My fellow compatriot on this page has focused on the significant and serious discussion of the challenges to DRM.

Just for a bit of relief I thought today I would share some of the less technical and social reasons that there needs to be an alternative approach to the security of content.

When one Googles “DRM Failure” there are 1,180,000 items. Top of the list is this satirical fiction. ” We lost our key and can’t decode our own content” laments the fictitious head of B-Movie Studios. The Humorix site offers a lighter look at much technology.
Other notable results - “The Five Stages of DRM Failure” which articulates just how the various rationalizations for various DRM strategies parallel the famous Kubler-Ross analysis of that most difficult reality- death.

More commonly the listings are accounts of hacks like this one where it is reported that Apple’s OSX can be run on any x86 box.
And you can find plenty of sarcasm like this post that suggests DRM is joining death and taxes among life’s inescapable miseries.

Naturally you can pay big bucks to various analysts to get their reports that explain the challenges to existing business models that DRM is supposed to answer. And there are whole organizations focused on the subject.
And this post where a previously happy user of a locked silo DRM recounts his discovery of the underlying thinking in the schemes- you are presumed guilty. Especially sharp point “DRM is the only technology which is entirely dedicated to disabling features for the primary user of the application. How weird that we’re spending brain and computer cycles on forcefully removing features?”.
And it isn’t just brains and machine resources that are invested. This 2003 post by Bill Rosenblatt, a paid consultant to the DRM enterprises, explains why it isn’t content companies paying for this reduction in capability, although it is clear that Bill thinks they should.

Even when it isn’t time or money, there are other costs to DRM. Like the Walkman and the delay in the Playstation 3 roll out. To be fair, much of the PS3 problem is supposed to be about producing diodes, but getting the copy protection working played a role in stalling the delivery until just before Christmas.

To be frank, it isn’t really lighter reading is it? So pick your poison folks. Load up on the technical challenges or stick with the social costs and collateral damage.

OK OK, I promise I’ll stop, and start posting some good news about why it doesn’t really matter what happens with DRM. Maybe it will sort itself out or possibly just inconveniencing honest people just enough to keep them from inadvertant copyright violations will prove to be worthwhile. Because the suspenders solution to the DRM belt is SmartMarks.