A couple weeks ago we were talking about Digital Rights Management (DRM). As you’ll remember, DRM is “secret” code attached to purchased digital media (music, videos, movies and software) to prevent people who didn’t purchase the media from using it. Even if you’re not into using digital music and movies purchased online, you’re still affected by DRM every day.

When you install some newly purchased software, the serial number that you must have to “activate” the program is DRM. In the not-so-distant past, entering the serial number was enough. However, nothing prevented multiple users from installing the software on multiple computers using the same serial number. Serial numbers were passed around the web in figurative buckets.

To prevent piracy, software developers created new DRM. The new system, working through the Internet, contacted the developer whenever software was installed on a given computer. Information about the new host computer’s identity was passed to the developer, rightfully prompting concerns about privacy. Just how much information was being passed to “Big Software”, along with the specific software registration information?

If you’re a Windows XP, Vista, or even Mac OS X user, your Internet-connected computer can be (more or less, depending on your preferences) in constant contact with Microsoft or Apple. How else could your PC or Mac know that a new security update is available and you haven’t installed it yet? It’s a cost of doing business in the modern computing world, I guess.

The level of DRM seems to be directly related to the cost of the software. After years of revenue loss due to piracy, Adobe had to institute an “activation” scheme similar to Microsoft’s on its expensive Creative Suite 2 (Photoshop, Illustrator, etc) products. Apple’s high-end photo management application, Aperture, requires Internet contact with Apple to be activated and upgraded.

On the other hand, some popular (but relatively inexpensive) software comes DRM-free. No serial number, no “activation” needed. Quicken, among others, comes to mind. Quicken’s lack of DRM (not even a serial number required to operate) doesn’t seem to have a significant effect on developer Intuit’s bottom line. Intuit is still in business, making money, and upgrading Quicken every year.
So what about digital music? In 2006 the music industry sold over 20 billion songs “DRM-free”, in a format we’re all familiar with. You guessed it – over 90% of music is still sold on a CD - music that can easily be ripped onto a computer, distributed over the Internet (illegally) and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores. Although a majority of the songs (around 75%) were sold by Apple’s iTunes Store and protected by Apple’s FairPlay DRM (and therefore only playable by computers with iTunes and the various models of iPods), 25% were sold by other online stores with DRM schemes of their own.

For an economy built on choice, this poses problems for the consumer. Although there is a sure-fire way to defeat DRM (burning an audio CD and then importing back onto the computer, which causes some degradation of quality), consumers who buy from one ecosystem cannot easily move to another. In other words, music purchased from the iTunes Store cannot be played on a Zune, and vice-versa (without the aforementioned hoop-jumping). Although American consumers haven’t complained much, some European countries are calling for an end to DRM as a condition to online sales.

What would a world without DRM look like? Would the music industry suffer? We’ll look into that crystal ball next time.

© 2007 Peter F. Zimowski