In 2003, the world's major record labels, fighting a losing battle against online file-sharing, agreed to license their music to Apple. CEO Steve Jobs promised them a revolutionary music service, an online store that sold songs for 99 cents each. Until then, the major labels had licensed their music only to services that charged customers a monthly subscription fee; if you stopped paying the fee, you'd lose your tunes. The iTunes Store would be the first place where you could download music from nearly every major artist without worrying about an RIAA lawsuit.
In return for letting Apple build up its inventory, the labels needed assurances that iTunes wouldn't be a haven for piracy. Having been burned by Napster, music biz bigwigs were understandably concerned that putting MP3s up "for sale" would be tantamount to giving away their catalogs to music-thieving college students. Apple assuaged these fears by creating a "digital rights management" plan called FairPlay, which prevented customers from putting songs on more than five different computers or from burning any playlist more than seven times. In addition, iTunes songs would not work with non-Apple hardware and software, and Apple's devices wouldn't accept copy-protected songs purchased from most other online stores. At first, these last two restrictions sat well with the recording industry; keeping downloaded songs tied to the iPod would limit piracy, the labels believed. But then the iPod became a phenomenon. Suddenly everybody had one—and the only place to buy music for the iPod was through iTunes, which would go on to become the most popular music retailer in the country. The irony was delicious, even poetic, the industry hoisted with its own petard: By demanding DRM, the labels had tied their songs to a single hardware and software platform and had inadvertently given Steve Jobs total control over their business.
In particular, the labels lost one of the most important rights any business enjoys—the ability to pick the price of its goods. By 2005, many in the industry wanted to adjust the price of songs on iTunes based on their popularity. Under their plan, hot new releases would sell for as much as $1.49, while back-catalog standards would sell for less than 99 cents. Jobs, arguing that raising prices would push people to download music illegally, rejected this proposal, forcing labels to a single storewide price. The record companies had little choice but to go along. Apple's store was the only game in town.
Last year, the industry tried another strategy to reduce Apple's power—record companies gave up one of their most prized demands, copy protection, in order to let Amazon set up a DRM-free online music store. Because it carries no restrictions, music from Amazon's store could work on Apple's devices—and, thus, Amazon looked like it might pose a threat to the iTunes Store's dominance. The labels, finally seizing the upper hand, declined to offer the same DRM-free deal to Apple until it agreed to institute flexible prices.
Last week, Apple gave in. The labels agreed to give up DRM on all songs sold on iTunes—within a few months, you'll be able to copy every song in the store to an unlimited number of computers, and you'll be able to play any song on any device, Apple or non-Apple. In return, Apple will let the industry sell songs at three different prices—69 cents, 99 cents, or $1.29, rather than today's universal 99-cent price.
For music lovers, this is fantastic news. Under the old regime, every purchase was a Faustian bargain—when you pressed "Buy" on iTunes, you were committing yourself ever-more tightly to using Apple's products long into the future. (True, you can remove iTunes' restrictions by burning songs to CDs and then re-ripping them to your computer—but that's a hassle, and it degrades your music quality.) But despite the changes at the iTunes store, it would be a mistake to see the Apple announcement as the beginning of the end of DRM. The computer and consumer electronics industry—not least of all, Apple—continues to build restrictive copy-protection into hardware and software. Buy a movie from iTunes and you're stuck playing it on stuff made by Apple—iTunes, iPods, iPhones, or Apple TV devices. Apple has even baked DRM into its computers: The video ports on new MacBooks check to see whether an external monitor obeys copy-protection standards. The upshot: If you want to connect your new MacBook to your old 50-inch TV in order to play an iTunes movie on the big screen, you're sunk—the software will balk that your TV is "not authorized."
Entertainment companies argue that they need DRM to stem rampant piracy. The music industry's decision to get rid of DRM on iTunes belies that argument—after all, piracy is not any less of a threat today than it was yesterday. (Though in the case of music, the DRM-prevents-piracy argument has always been ridiculous because every record company has long sold its content in formats that are completely unencumbered by DRM: CDs.) Instead of protecting against piracy, it's now clear that the labels stuck to DRM on iTunes after they'd abandoned it on Amazon for business reasons—to extract better terms from Apple. All the while, we customers got a raw deal, forced to purchase songs tied to a single device for no good reason other than the industry's whim.
Has DRM harmed the entertainment industry? Surveys show that when asked about "DRM," most people aren't opposed to the concept. But there is an obvious downside to DRM as it's been implemented—by inconveniencing law-abiding users, copy protection increases the allure of illegal trading. For movies, that allure remains. If you're looking to buy Pineapple Express, you can either get it legally from iTunes, illegally from BitTorrent, or you can drive over to your local supermarket and buy a DVD. The iTunes version will begin to play instantly, but it goes for $14.99 and you'll never truly own it. Its DRM will always be there to dictate what software, what portable player, even what TV you can view it on. Buying the movie also requires you to bet on the long-term future of Apple, which seems unwise in such a fluid industry. (Say Steve Jobs leaves the firm, Apple's shares collapse, and Microsoft snaps it up and shuts down iTunes. Not likely? Perhaps, but why bet your movie collection on Jobs' health?) The BitTorrent version of Pineapple Express, meanwhile, might take an hour or two to download, but it will play on any device—you can burn it to a DVD, you can convert it to work on your iPod, your Linux laptop, maybe your new Palm Pre. You don't have to worry that someday in the future you may buy an "unauthorized" TV that will render your movies useless.
I'll bet that most people who go down the file-trading road don't consider these advantages; BitTorrent's attractive price—free!—likely explains their motivation. But iTunes downloads are a bad deal even when you don't consider price—you're much better off going to the store to buy the DVD of Pineapple Express than getting the movie from iTunes. Even though DVDs are protected by DRM—hackers broke the protection-scheme in the 1990s—you can be reasonably sure that they'll play long into the future, regardless of what TV you buy. That's not true of movies from iTunes.
But if DRM doesn't do anything to stem piracy—and, indeed, seems only to make piracy more attractive—why do companies keep crippling their content? Fred von Lohmann, senior staff attorney at the Electronic Frontier Foundation, an ardent opponent of copy-protection software, argues that DRM's main purpose is to allow entrenched publishers to control innovation that occurs around them. Before DRM, content producers were subject to disruptions caused by other people's ideas: You might have a nice business selling second-run films, but then someone goes and invents a home-movie machine and suddenly you've got to fight in a brand-new industry. DRM changes that dynamic. Because copy-protection software is protected by federal law, wrapping all movies, music, and software with DRM allows companies to force innovators to ask for permission before creating something new. Say you invent a tiny portable movie projector and want your customers to be able to convert their DVDs to small files that can fit on the projector's removable drive. You're out of luck—DVDs are protected by DRM, and you can be sure that Hollywood would ask you to pay for the privilege of letting people play their legally purchased movies on your new device.
There have been signs, recently, that TV and movie companies are becoming as worried as the music industry once was about Apple controlling their businesses. In 2007, NBC pulled its popular shows from iTunes after Apple declined to alter its pricing scheme for TV episodes; a year later, after slight concessions from Apple, NBC came back to iTunes. But if NBC or any other company wants to break free of Apple, they could do so easily—just set up an easy-to-use, reasonably priced store similar to iTunes but sell all their content without copy protection. If they do this quickly (before Apple comes to monopolize the online movie and TV business), entertainment companies could inspire a host of new innovations around their videos—we might see the rise of tiny projectors meant for movies, of portable tablet computers perfect for playing high-def TV shows, of a huge market for clips downloaded to cell phones, and possibly many more devices so awesome we can't even imagine them yet. The best thing about these new machines—they wouldn't play movies from iTunes. The industry would have freed itself from Apple.
But that's not the approach Hollywood is taking. Instead, studios announced last week that they're going ahead with something called the Digital Entertainment Content Ecosystem, which promises to let people easily move shows and films between a bunch of approved devices. There's one problem: Apple's devices aren't on that list. So movies you buy for your iPhone wouldn't work on your DECE device, and movies you buy for your DECE devices wouldn't work on your iPhone—nor on any other new product that isn't approved by the industry. In other words, you're better off on the dark side.