Lessons of Sony BMG's CD Mess

Labels Need DRM, but DRM Alone Won't Work
11.30.05

Sony BMG's CD copyright protection fiasco illustrates an obvious point and a paradox.

The obvious point: if you're going to use digital rights protection technology to safeguard digital entertainment for consumers, you'd better make sure you work the bugs out first.

The paradox: Sony BMG needs to have a DRM strategy in place, but it is bound to fail.

Before I explain the paradox, a quick review. Sony BMG inserted software onto CDs from artists like Neil Diamond and Celine Dion designed to keep consumers from making more than three copies of the discs or freely trading the music online or with friends. The company (or its subcontractors) also inserted a little piece of spyware that opened them up to virus attacks and legal action from Texas New York Attorney General Eliot Spitzer and practically everyone else. Massive recalls are underway.

Now, you can argue (correctly) that Sony has a right to protect its discs, should have a DRM scheme in place and merely goofed by either overreaching or doing bad quality control.

But the company was bound to fail. Because any copyright scheme for entertainment ever devised has been cracked and the underlying content made available to the masses. DVDs, videotapes, cable and satellite TV, cassettes - all are routinely copied and will continue to be, no matter how many legal eagles or what copyright protection scheme the studios employ. You could almost count in days the time it would take after the release of a copy-protected Sony BMG disc before gleeful hackers broke the code and posted how they did it on the web - along with pirated Sony BMG CDs.

So why do I say Sony BMG needs to have a DRM scheme in place if it is bound to fail? Because DRM schemes and legal strategies protect creators of intellectual property against theft by casual users only if the benefits of paying outweigh the liabilities of stealing.

Take cable. Anybody with a little chutzpah can steal a signal, even though it's encrypted. But most people don't because the perceived benefit of paying $50 a month for unlimited content to watch and record outweighs the hassle and legal liability of ripping it off.

Do some people rip off cable? Sure. But last I heard, the cable companies weren't going out of business and Hollywood was pretty gung-ho about its cable profits.

So if you define DRM as 100 percent security, the cable industry's encryption has failed. But they still make plenty of money. That's the paradox.

The problem for Sony BMG and other record labels is that the benefits of ripping off CDs still outweighs the liabilities of getting caught and the hassles of breaking the DRM or downloading songs from the web. So even if Sony BMG's DRM software is squeaky clean, it wouldn't completely stop the copying problem.

In fairness to Sony BMG, the company was well aware of that fact when it began copy-protecting its CDs. "Our intent was to create an educational speed bumps rather than to create a full stop," a Sony BMG executive said. "We wanted to give consumers the functionality they wanted while helping them understand they shouldn't make hundreds of copies."

For Sony BMG and other labels to stop ordinary people from hacking and copying, they need to lower prices and intensify their efforts to create new products like dual video-audio discs; they need to offer CD buyers exclusive benefits such as discounted concert tickets, free ringtones and downloads, and free access to exclusive websites. Ultimately, the labels will probably have to discard CDs entirely for another business model that persuades consumers to buy rather than steal.

Only then will a failed DRM strategy have a chance of success.