Life After Apple Lock-up

April 2, 2007
By Alexandra Berzon

Startups begin to imagine a DRM-free world.

EMI’s decision to sell unprotected song tracks on Apple’s iTunes online store had many industry observers wondering whether the record label’s stunning about-face would prompt rival music companies to follow suit.

Copyright protection software—also known as digital rights management or DRM—has long been a contentious issue dividing the record industry and online music retailers. The labels have insisted music retailers used DRM software to prevent piracy by strictly controlling how people could enjoy their music. Apple, Microsoft, and others responded with developed proprietary DRM that is annoyingly incompatible with each other’s products.

The status quo has been awkward, but it has also enabled a small but entrepreneurial group of startups to develop software and services that work with, or work around, cumbersome DRM software. But by Monday, the possibility that more music labels could follow EMI’s lead prompted many startups to begin reassessing their assumptions and business plans.

“This is a bombshell,” said John Beezer, president of the self-funded Seattle-based Shared Media Licensing. “We’ll look back on this as the moment when everything changed.”

The timing could not have been better for Mr. Beezer, who spent the past weekend preparing to shut down his online music service Weedshare, because of DRM incompatibility issues with the new version of Windows Media Player. Weedshare allowed users to play songs three times for free before having to pay, but his service wouldn’t work with the newest Windows Media software.

Now with the EMI announcement, Mr. Beezer is considering a business plan he thought wouldn’t be possible for a long time—an open music platform.

“We thought the open strategy made the most sense, but we thought the major labels would never go for it,” said Mr. Beezer. “The news about EMI really shifted that equation. Now we’re thinking, ‘Oh my god. They really will go for open formats.’”

Mr. Beezer said he is going to start working under the same assumption that many industry insiders and analysts put forth in the wake of the news—that DRM will no longer be seen as a technology that locks people into specific playback formats and limits. Instead, he predicted, DRM will evolve into a “fingerprinting” tool that monitors when consumers play songs so they can be charged accordingly.

“For startups working in the DRM space, it’s now about creating better accounting and tracking rather than locking things up completely,” said Gartner analyst Mike McGuire.

Paris-based Advestigo is one such company. Funded by I-Source Gestion, CapDecisif, and EonTech Ventures, the company makes fingerprinting and music tracking software for music labels. Executive vice president for business development Brian Dunn believes his group could well see a surge in business in the wake of the EMI announcement.

“This is a many-to-many instead of a one-to-many distribution model,” said Mr. Dunn. “Therefore, you’ve got to tag the content and follow the content, and figure out monetization.”

Christopher Levy of the closely held Austin, Texas-based BuyDRM was one of those who was not so eager to contemplate the possibilities in the wake of EMI’s announcement. His company provides DRM technology to artists and record labels and he views the EMI announcement as a desperate move by a desperate music company trying to get around iTunes’ dominance in online sales.

“This is not the bellwether for the rest of the industry,” said Mr. Levy. “As long as there is media, there is going to be digital rights management. We can’t assume the music industry as a whole will abandon this. All things of value have some protection, and that’s not going to change.”

Full article here.