Those who do not remember the past are doomed to repeat it

Today we have another post by Roy Smith - co-founder of Turtle Beach Systems. Thanks Roy!

The battle of record industry versus their customers is eerily similar to a battle that was fought and lost before many of today’s music lovers were born. The issues were quite similar and the results of that battle shed light on the likely outcome of this one.

Back in the early days of the PC in the early 1980’s, software was a very new concept. There had never been a product that could be replicated at will by the customer. And replicate they did: “Oh, you want a copy of WordStar? Here you go.”

Like RIAA in the '90’s, the software developers got legislation passed to identify and protect their intellectual property rights, but in practice these new laws were almost unenforceable. Most developers of high dollar value applications then moved to an early form of DRM called “copy protection”.

Just like DRM for music today, copy protection used a variety of crafty methods to prevent users from making multiple copies of programs. Some systems required a hardware key that had to be installed in the computer, others used specially prepared diskettes with known errors that disk copy programs could not duplicate.

The hacker community responded rather quickly. (Sound familiar?) Patches soon appeared online to unlock all popular copy protected applications.

Unfortunately, copy protection had two unintended effects on the legal purchasers of software. The first was that many legal users encountered problems with their legal copies because of the copy protection and publishers were forced to spend great amounts of effort to make their product work through the DRM issues.

The second unintended effect was that legal customers developed an adversarial attitude because they were indirectly being accused of being thieves. Even when it worked, the DRM was still an annoyance that didn’t provide value.

In the end, the honest people who were not likely to copy and distribute the software were inconvenienced and angry about it, and the dishonest people who were inclined to copy the software were still able to do so. (Again, sound familiar?)

Eventually the software industry abandoned copy protection in favor of installation keys and online registration ala Microsoft's genuine Windows testing and those 30 digit install codes.

The PC Software industry didn't fall apart when it dropped copy protection. As we all know, it has flourished.

Yes, there is piracy. Every business has theft, fraud, shrinkage, and bad debts. The point is that DRM is one solution of many for these problems. Will the music industry learn anything from the battles lost by the software industry of the '80’s? Time will tell.

EMI removes DRM - finally acts pro-consumer .. Sort of ..

Today's post was penned by Roy Smith - co-founder of Turtle Beach Systems, an early trail blazing company in the sound card industry. Thanks Roy!

Yesterday on April 1, the web was full of rumors about a big press event today in London from EMI Records. Supposedly Steve Jobs was going to participate – what would it mean? The Beatles on iTunes? No more DRM? Or was it all an April Fools joke?

Well, it turns out that EMI is the first of the “Big 5” record labels to crack on the DRM issue, allowing downloads of individual songs without DRM. As an added bonus, they are releasing these DRM-free tracks in a higher quality AAC format.

A great victory for all who decry DRM and its many inconveniences.

But as always with mega corporations, the real story is in the fine print.

A few paragraphs down in the press release, EMI announced that it will be charging more for the DRM-free versions. $1.29 per song. Let’s not cancel the celebration, this is a big step toward the end of DRM but let’s step back a bit and examine the situation we are now faced with.

If I buy a 12 track Coldplay CD at Amazon.com, I get 12 tracks with no DRM, and at maximum audio quality (better than AAC) for $11.97. Add a few bucks for shipping (or tax if I bought it locally) and we’ll call it $16. When I get the CD, I pop it in a player and I instantly have top quality music. The record company’s cost to produce the CD (including artist royalties) was probably about $2.50. They sold it to Amazon for about $6, so figure $3.50 profit on the CD.

Now, If I download the same Coldplay album (sans DRM) from iTunes, it will cost me $15.48, about the same. But I have a lot less to show for my money. I don’t have any physical back up if my computer’s hard disk crashes. I don’t have any artwork or credits if I want to know who played on it or produced it. It will take me 15-20 minutes to download it.

The record company’s cost for the download was whatever royalty they had to pay the artist. Did you know that most standard recording artist contracts call for less royalty to be paid to an artist for music that is delivered using “New Media/Technology”? Typically record labels pay 10-20% less royalty to an artist for music that was downloaded, despite the fact that their costs are much lower than a physical CD.

It's been widely published that the record companies split profits with iTunes about 50/50, so on the download version, EMI makes about half of the $15.48, or $7.75 gross. They pay the artist 10% less royalty ($0.70), and pocket the rest ($7.05).

Now as we celebrate that we have successfully picketed and petitioned the record industry to remove DRM, the net result is that we as consumers have less, the artists have less, and (surprise) the record industry has doubled profits.

But still, this is progress. Let’s hope a year from now we’ll be looking back at this like we do to the day the wall came down in Berlin… a small act that grew to symbolize a big change.