Business perspective

The size of the digital content business has been growing. For example, in the music industry, the Recording Industry Association of America (RIAA) reported that the total digitally distributed music content received a new all-time high revenue of $4.51 billion while the total physical shipment revenues shrank from 35% to 32% from 2013 to 2014 (RIAA 2015). It means that revenue wise digital shipment has dominated the U.S. music market with around two-thirds of the total revenue share.

In the publishing industry, the Association of American Publishers (AAP 2015) indicated a clear trend in the growth of eBook format which hit record volume numbers in 2013 and received revenue growth +43% over 2011. For home

DRM is essentially rights management, DRM provides a mechanism for end users to purchase the usage rights of their desired content. As a consequence, end users do not purchase content itself. Instead, they purchase a set of rights to access the content (Trivedi 2009). Compared with purchasing the ownership of content, purchasing the usage rights of the content can provide much more options for end users to choose. Moreover, as a set of usage rights is always a subset of rights that the ownership includes, the price for a subset of ownership rights should ideally be lower than the price for the ownership of the content. Rights can be tailored to meet the need of a specific end user. End users do not have to pay for the usage rights they don’t need. On the other hand, DRM enforces the purchased rights to the content. If the usage of the content is not defined in the purchased rights, then the usage will not be granted to the end user. DRM, as an enforcer of purchased rights, was supposed to play an important role in preventing piracy of the content. For example, according to Steve Jobs (2007), Apple did have to deploy a DRM system to convince the biggest music companies to license their music to distribute legally over the Internet. In summation, enabling new business models and preventing piracy were supposed to be the main reasons to justify the existence and demands of DRM for rights holders.

The DRM adoption in the music industry has so far proven the otherwise. First about the rights model DRM enables, Trivedi (2009) pointed out how customers failed to understand the rights they purchased, especially the restrictions, which lead to dissatisfaction. According to the survey conducted by Amberg and Schröder (2007), the majority of customers for music are not interested in personalized rights even with a distinctive price level. Customers prefer music services that provide more flexible usage rights even though those services have a higher price level (Dufft et al.

2005). Secondly, about the piracy DRM prevents, Steve Jobs (2007) already explained why piracy could not be avoided by DRM if the same content is available in DRM-free format from another source, such as music on unprotected CDs. Meanwhile, existing DRM systems have been circumvented. Hauser and Wenz (2003) presented many methods used to hack the existing DRM systems and concluded that it wouldn’t take long to circumvent a DRM system if the interests of the content protected by the system have reached a certain level. It is enough to have just one DRM system breached for the piracy to flourish for any protected content. DRM seems to fail to deliver either the desired business model or the security it promised in the music industry. Moreover, the lack of DRM interoperability has introduced unnecessary usage restrictions to customers (Geer 2004). Customers take DRM interoperability issues, not only in their valuation decisions but also in their decisions,

to become piracy users (Sinha et al. 2010). Consequently, rights holders compromised and retailers in the music industry started to make strategic changes.

Already in 2007 many online music stores, such as Rhapsody, Verizon, Yahoo Music, and MTV, started to remove DRM protected content from their catalog (Sinha et al.

2010). Apple press info (2009) announced that all songs are DRM-free on iTune in contrast with DRM protected approach Apple applied previously. Meanwhile, online music streaming services, such as Spotify’s on-demand streaming as well as Pandora’

Internet radio broadcasting, as alternatives have gained grounds on the landscape of the music industry (Ritala 2013). While the revenue from permanent digital downloads fell 8.7% in 2014, streaming music services grew 29% in 2014 (RIAA 2015). Figure 6 illustrated a clear trend in the growth of streaming music services in recent years and by 2014 accounted 27% of total industry revenues. If categorized by revenue source, streaming music services include subscription services, such as Rhapsody and paid version of Spotify, streaming radio service revenues distributed by SoundExchange, such as Pandora and SiriusXM, and nsubscription on-demand streaming services with advertisements, such as YouTube, Vevo, and free versions of Spotify (RIAA 2015). Subscription services contributed the most for streaming music revenues. Subscription services are enabled by DRM as well (Kwok 2002). However, as protected content presented through music streaming services is not exposed to customers as an asset they own, such as a file, customers do not expect to consume the content in any other ways than what is provided by the client applications of the music streaming services. The DRM interoperability issues that could be exposed from a file download case are therefore well hidden in a streaming case for customers.

Noble, and Apple, have applied their own DRM schemes (Trivedi 2009). Unlike the music industry, book piracy required much more effort before digital era (Trivedi 2009). Rights holders tend to be more cautious about digital publishing. From the customers’ point of view, a normal end user may not have needs to own more than one e-book reader in most of the cases, unlike in music use case where end users normally have more than one device to consume the music. However, similar concerns of usage restrictions, such as printing, as well as interoperability issues, such as sharing with friends, have been raised as well (Carreiro 2010). Some of the concerns have been taken into the DRM implementation. For example, Nook, the e-reader from Barnes & Noble, allows book sharing (Trivedi 2009). Still, due to the lack of DRM interoperability among e-book retailers, customers are locked with their retailers. When they need to upgrade or to resell their e-reader devices, they also need to take legacy content into consideration (Carreiro 2010). As Trivedi (2009) mentioned, the publishing industry is still in its early phase of DRM adoption compared with the music industry. Whether DRM adoption will follow the similar trend occurred in the music industry is yet to be seen.

The DRM adoption in the video industry resembles the music industry in many ways. Many video retailers have adopted DRM with a subscription based streaming service model, such as Netflix, Spotify, Hulu, and Amazon Prime Instant Video (Wang et al. 2013). According to DEG (2015), subscription streaming spending in U.S. has increased 25.81% from 2013 to 2014, which represents 53.3% of total digital spending of U.S. Home Entertainment. Still, instead of offering DRM-free content as the music industry did, the video industry has been searching for an interoperable solution that gives customers more flexibility among different retailer DRMs.

UltraViolet, as a plausible solution, has been pushed by the industry and been gaining momentum (Schultz 2012). According to the DEG 2014 year-end cover note, the number of UltraViolet accounts grew more than 30% in 2014 and reached 110 million registered rights in total.

While reviewing the industry adoption of DRM for music, eBook, and video, it is worth noticing that DRM interoperability has been one of the main issues complained by the customers.