Thoughts On "Thoughts On Music"

Updated on 2/6/2007 at 10:37PM EST

Apple CEO Steve Jobs recently posted a commentary on the state of DRM, purchasing music online, competition, and music on portable players. Mr. Jobs is a creative dynamo, and has single-handedly resurrected Apple, Inc. from the danger of acquisition, to one of the world's most successful consumer electronic companies. That said, he obviously has to defend the company that he co-founded, was fired from, and then saved like the Lone Ranger. But his "Thoughts on Music" are as far from reality as his Pixar movies.

If you would like to first read his commentary first without my thoughts, you can find it at www.apple.com/hotnews/thoughtsonmusic/. I'd like to rebut his commentary piecemeal. Let's begin.

Jobs—"To begin, it is useful to remember that all iPods play music that is free of any DRM and encoded in “open” licensable formats such as MP3 and AAC. iPod users can and do acquire their music from many sources, including CDs they own. Music on CDs can be easily imported into the freely-downloadable iTunes jukebox software which runs on both Macs and Windows PCs, and is automatically encoded into the open AAC or MP3 formats without any DRM. This music can be played on iPods or any other music players that play these open formats."

Right on. This is the best feature of iTunes, and one that I hope will remain intact as the music industry begins to flex its muscle with Apple. For example, the crippled Microsoft Zune player has a feature whereby you can "squirt" (via WiFi) songs to friends that they can play 3 times or keep for 3 days. If they like it, they can then go buy the music. But it turns out that Sony BMG (and others) have limited that capability to just over 50% of their artists' tracks. The most popular artists' tracks cannot be squirted. Yay DRM.

Jobs—"The rub comes from the music Apple sells on its online iTunes Store. Since Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied. The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices."

We understand the need to protect premium content, like music, from the thieves, er, customers. And this isn't a slight on Apple, but the real problem with music is that it's expensive and hard to buy. By "hard to buy", I mean the 128k bps encoded files don't sound very good, yet they charge us the same as a physical CD, and they can't be played on any other players, thus, locking us in to the iPod. Let's recap, same price, worse quality, no fair use rights, no interoperability.

Jobs—"Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services. However, a key provision of our agreements with the music companies is that if our DRM system is compromised and their music becomes playable on unauthorized devices, we have only a small number of weeks to fix the problem or they can withdraw their entire music catalog from our iTunes store."

Up to 5 computers and an unlimited number of iPods. What about any other device I want to use?

Jobs—"To prevent illegal copies, DRM systems must allow only authorized devices to play the protected music. If a copy of a DRM protected song is posted on the Internet, it should not be able to play on a downloader’s computer or portable music device. To achieve this, a DRM system employs secrets. There is no theory of protecting content other than keeping secrets. In other words, even if one uses the most sophisticated cryptographic locks to protect the actual music, one must still “hide” the keys which unlock the music on the user’s computer or portable music player. No one has ever implemented a DRM system that does not depend on such secrets for its operation."

No comment.

Jobs—"The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get free (and stolen) music. They are often successful in doing just that, so any company trying to protect content using a DRM must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game. Apple’s DRM system is called FairPlay. While we have had a few breaches in FairPlay, we have been able to successfully repair them through updating the iTunes store software, the iTunes jukebox software and software in the iPods themselves. So far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music."

True, the most liberal usage rights, according to the recording industry. But fair use is out the window, of course. Sort of like how a McDonald's cheeseburger is the jailhouse equivalent of a Lobster dinner. And remember that these insidious "smart people" we all fear are doing this for two reasons: notoriety, and to avoid being ripped off by the music industry. If music were of decent encoding quality, without DRM, and 25 cents per track, I believe you'd see casual piracy drop dramatically. Make music easily accessible, of good quality, and inexpensive. There have been online music store experiments that prove this to be true.

Jobs—"With this background, let’s now explore three different alternatives for the future.

The first alternative is to continue on the current course, with each manufacturer competing freely with their own “top to bottom” proprietary systems for selling, playing and protecting music. It is a very competitive market, with major global companies making large investments to develop new music players and online music stores. Apple, Microsoft and Sony all compete with proprietary systems. Music purchased from Microsoft’s Zune store will only play on Zune players; music purchased from Sony’s Connect store will only play on Sony’s players; and music purchased from Apple’s iTunes store will only play on iPods. This is the current state of affairs in the industry, and customers are being well served with a continuing stream of innovative products and a wide variety of choices."

Well served with a continuing stream of innovative products and a wide variety of choices? Would he be saying that if the iPod didn't own over 80% of the market? Hysterical. Are we being well served by multiple formats, all proprietary? Isn't that why I had to get rid of my Betamax?

Jobs—"Some have argued that once a consumer purchases a body of music from one of the proprietary music stores, they are forever locked into only using music players from that one company. Or, if they buy a specific player, they are locked into buying music only from that company’s music store. Is this true? Let’s look at the data for iPods and the iTunes store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold.

Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. Its hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music."

Yes they are. They just know it, and don't buy much of their music online for that reason. If there were no DRM, the music were cheaper, and the quality were better, their iPods would be filled with music purchased from the iTunes Music Store. Of course people would swap music, just like they did when cassettes were introduced (which the recording industry also tried to ban because it would ruin their industry). We all know from past experience that even when music can be copied and shared freely, it has the opposite effect on sales. It introduces people to new music, which causes them to buy more music, so long as they don't feel as if they're being ripped off. But, then again, we're all thieves.

Jobs—"The second alternative is for Apple to license its FairPlay DRM technology to current and future competitors with the goal of achieving interoperability between different company’s players and music stores. On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its FairPlay DRM. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak. The Internet has made such leaks far more damaging, since a single leak can be spread worldwide in less than a minute. Such leaks can rapidly result in software programs available as free downloads on the Internet which will disable the DRM protection so that formerly protected songs can be played on unauthorized players."

Apple secrets never leak, and every new product announcement is a complete surprise. Oh, and FairPlay has never been cracked since Apple keeps its secrets to itself. Muuuahahehehhaha!

Jobs—"An equally serious problem is how to quickly repair the damage caused by such a leak. A successful repair will likely involve enhancing the music store software, the music jukebox software, and the software in the players with new secrets, then transferring this updated software into the tens (or hundreds) of millions of Macs, Windows PCs and players already in use. This must all be done quickly and in a very coordinated way. Such an undertaking is very difficult when just one company controls all of the pieces. It is near impossible if multiple companies control separate pieces of the puzzle, and all of them must quickly act in concert to repair the damage from a leak."

I think that if DRM hacking information can spread across the internet in less than a minute, these giant conglomerates can coordinate some kind of process for updating player software. They should have that for computers too. Maybe they could call it something like 'Windows Update" or "Apple Software Update". I may patent that idea! Regardless, dumping DRM avoids all of this.

Jobs—"Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies. Perhaps this same conclusion contributed to Microsoft’s recent decision to switch their emphasis from an “open” model of licensing their DRM to others to a “closed” model of offering a proprietary music store, proprietary jukebox software and proprietary players."

Or was it because the Zune player needed new DRM controls in the music files so they could add the "squirt" feature, and others, which the music industry could then systematically disable.

Jobs—"The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.
"

Amen. But we all know that Apple would keep DRM anyway. The lock-in guarantees that people would buy iPods to use the best music store. It's iPods that keep the iTunes Music Store in business, not the actual sale of tracks.

Jobs—"Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system."

And it's obvious that CD's haven't hurt the recording industry, nor have computers. There will always be some degree of piracy, but most people are not thieves, and want to own their music legally. They just don't want to be ripped off.

Jobs—"So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies."

…and a negative to Apple. If there were no lock-in to the iPod, people may begin to purchase other players.

Jobs—"Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly."

Will you? I don't buy that, albeit, I'd love to see it happen. The best deals in music are to buy used CD's by using services like half.com. The recording industry doesn't see a dime of your purchase, and you get a legal, DRM-free CD which you can RIP and encode to whatever quality level you like, and play on any device you prefer. And isn't that how it should be, music licensed per person, not per device? It may take a catastrophic failure with regard to sales for this to finally happen. One can only hope.