Report: Digital Rights

SYDNEY -- Report from Danny Butt on the Network Insight Institute's seminar on Digital Rights Management and Cooperation, held at Allens Arthur Robinson, Sydney on October 13th 2004.

http://networkinsight.org/events/seminar_13Oct2004.asp

Network Insight are a think-tank run by Prof Mark Armstrong, a Professor of Media Policy and well-known identity. Armstrong's modus operandi, as far as I can tell, is to regularly gather together the biggest names in the converging media industry (who also happen to be on the Network Insight sponsor list) to assess the state of play. This was my first Network Insight event, according to one regular the crowd was a little more media, a little less policy than usual. The location was on the 25th floor of a CBD office block, providing a great view of the Sydney harbour on a very summery (35 degrees Celsius) spring day. The bulk of the audience came from the large TV broadcasters, with a smattering of new media people and the odd management consultant, journalist and academic.

The day's format was designed for maximum content - no written papers, no introductions, just 12 minute presentations from each panellist followed by half an hour of questions and discussion. If Armstrong was a teenager I'm sure his favourite phrase would be "keeping it real", and his dynamic presence kept the pace up through the day.

I'm usually against technological determinism, preferring to focus on content rather than form. However, events like this remind me that - at a purely sociological level - TV people and new media people are different. [This was reflected in one of the conversations I was in at a break, where two players were discussing what sort of person would be good for a current management role: "We tried a broadcast person but now I think a new media person with communications experience might be better"]. The broadcast people talk about "quality content", while the new media people talk about "user experience". With a few exceptions these divisions prevailed over the day's events. It will become clear where my sympathies lie, so take all that follows with a grain of salt, and the usual disclaimers that this hasn't been fact-checked, my hearing is bad, etc.

PANEL ONE

First up on the day was Will Berryman, Chief Technology Officer for multicultural broadcaster SBS. Will's presentation focussed on the consumer electronics economy. In his view this was driving enormous change in media consumption patterns, and that content providers were generally in a reactive position. Most importantly, he pointed out the huge and unprecedented investment in self-education average media consumers are putting in to understanding how new devices work. The perception in much of the media industry that new media enthusiasts are "hobbyists" is becoming more difficult to sustain as everyone and their granny gets a digital camera, and becomes an increasingly sophisticated media user. Media attempts to establish IP protection at the head of the value chain through DRM is fighting against this consumer economy. Instead, media should attempt to join each part of the entertainment value chain. According to Will a "Testing and Conformance" environment was needed in Australia for the plethora of new devices.

Dominic Stone, Broadcasting Solutions Manager, IBM soon reminded us why we're all here with a presentation solidly focussed on content protection rather than market growth, although he did note that new media forms such as ringtones were created through technology and this raised questions about the business models that attached to them. But by and large Stone gave us pretty classic Vendorism: DRM is a problem, technology has the solution, and the subtext is that you can buy it from us. Stone's taxonomy of DRM consisted of Encryption, Watermarking, and Authorisation (not even mentioning the serious problems of the first two). Stone claimed that "Subscription content services have unique interest in DRM as they will be held liable for piracy." He also discussed the Triple Play - Voice over IP (VOIP), Video on Demand (VOD), Internet, and noted that energy utilities were well placed to offer this suite of services (Lyse for example)

Keith Jones, GM Manufacturing, Panasonic arrived late having been caught in traffic. He noted that Panasonic are the only TV manufacturer in Australia! He also discussed the challenges of the explosion in consumer electronics - there were now over 50 brands of television being sold in the main retailers, a figure that has grown exponentially from 10 years ago. Keith described Panasonic's thinking as seeing a device-level shift from TV-as-watching to TV for use - and this will eventually move to Usable TV, and probably act as a gateway to home automation etc (control your aircon and do your banking through the TV). He noted that manufacturers need new revenue streams but no-one knows what these are yet, but will somehow be content related. There are now no margins in manufacturing any kind of DVD player. Most interestingly, Keith noted that there were heaps of Panasonic devices (I assume PVRs - Personal Video Recorders) not being released in the Australian market due to content rights issues and pressure from media companies (this will be a recurring theme).

The three then answered questions from the floor. Berryman was at his best responding to question about protecting the content business model in the new media environment: "If you make content, you have to have thousands of business models to make any money ... music companies and 20th Century Fox had to be dragged kicking and screaming into this, but it's the reality". The old story came up about the US movie studios campaigning hard to prevent the introduction of the video cassette recorder (VCR), which then became a crucial part of the film production business model (no Hollywood film makes a profit without video/DVD sales, and this is embedded in production arrangements).

PANEL TWO

After a break, Panel two kicked off with Kim Williams, CEO of Foxtel and "running the biggest show in town" as Mark Armstrong put it. He noted that Foxtel had relaunched in March with a digital platform, and that Foxtel will introduce a PVR in 2005. Williams spoke eloquently of how the PVR revolutionises the viewing experience, allowing users to see what they want when they want it. Personalisation, and on-demand viewing is the future. PVR "reduces viewing and lifestyle conflicts." This is a paradigm shift that will reduce churn, and increase uptake of premium channels. The PVR can also become a platform for on-demand media. This will be happening, and soon. There are over 430 000 digital settop units in the "terrestrial system" and double that in satellite/cable, so digital TV has well and truly arrived in Australia, even if little seems to be happening.

While sounding like a cheerleader for new content technologies, as the detail emerged about Foxtel's plans the picture became clearer. Williams noted that the "exit points on settops are very important", and that there will be no interoperability between the Foxtel PVR and any other devices (e.g. home computer, portable media player). Foxtel have "great sympathy" for broadcasters and will not allow ad-skipping on their PVR (removing what is usually a big selling point for PVR technology). Williams is a great believer in SVP - Secure Video Processors - and will work to ensure "insecure" devices will not be operating with Foxtel content. Don't expect to hook up your TiVO or third-party PVR to Foxtel in the future.

In a "tough on crime" anecdote, Williams described how Foxtel spent $8 million on upgrading their legacy non-digital systems to new security model even though they were being phased out, to combat piracy "estimated at $40 million." The revenue issues were less important than sending a message that Foxtel was prepared to "kill the pirates".

My notes from Scot Morris' (Australian Performing Rights Assocation / AMCOS) presentation consisted mostly of acronyms. He outlined the various Digital Identifier projects - MIIIP, ISAN, DOI - that aimed to attach unique identifiers and metadata to digital content. MIIIP, the Music Industry Integrated Identifier Project, was supported by industry associations such as IFPI, RIAA, CISAC, BIEM. MIIIP includes watermarking technology. ISAN is ISO approved, and covers all Australasian registered works. It could be used for digital object identification, and Electronic Program Guide production. The Digital Object Identifier (DOI) system seems US dominated and focussed mostly print and education.

Morris also noted the noted the difference between the management of "digital rights" and the "digital management of rights".

Kate Harrison, Partner presented a paper by Rob Nicholls consultant, from law firm Gilbert and Tolbin. Nicholls is co-author of a scathing review of Australia's ICT policy (or lack of) on the GT site ( http://tinyurl.com/46h8f ). According to Nicholls there is a change occurring in the technical model for TV, and commercial free-to-air broadcasters have little involvement in setting standards. He noted that Foxtel Terms of Use suggest that user cannot open their Foxtel box, it remains owned by Foxtel, and there are strong business reasons for them to pursue the vertical integration of content distribution and consumption technologies. Nicholls contrasted this "closed box" system to "open box" systems such as those based on Internet Protocol and connected to open networks. The open box system is insecure, copies can be redistributed, and DRM is tied into integration with proprietary media players, device drivers, and operating systems (e.g. Windows Media Player).

>From the broadcasters' point of view systems need to remain closed and not connected to the Internet, so broadcasters will need to develop time-shifting within this closed environment (echoing Williams' plans).

DRM includes: Persistent Protection, Business Rights, Access tracking, Rights licensing. What does "effective and robust" DRM mean? A part of effectiveness - underrated - is that systems must be renewable, they need to be able to be changed if (when) hacked. This makes physical device DRM difficult. Another marker of the tension between electronics and content industries - Dick Smith are selling a "video cleanup box" that strips Macrovision protection from videos, allowing you to make a copy. There is no anti-circumvention provision in Australian law to prevent the sale of such analogue devices.

PANEL 3

After lunch it was onto panel 3, with Chris Atkins, a partner at consulting firm Accenture, up next. Atkins' presentation was dense, with detailed diagrams outlining the new business models emerging in the new media environment. Cultural gaps in the audience were evident, you got the feeling that most of the media audience weren't so interested in these details which were seen as slightly abstract. A certain level of frustration with the morning's proceedings was also evident from Atkins, as he noted that the bulk of the discussion had been about existing forms of broadcast programming (long-form), whereas in his view there would be more emphasis on short-form programming and distributed content in the future. The new business models emerging in the digital environment would be the driver for DRM solutions, rather than technologies being the driver. Atkins outlined three areas where DRM was important: use rights, tracking royalties, and protecting duplication. His view was that far too much of the discussion had been on protection.

Atkins' Digital Value Chain showed five points were businesses could operate in the digital content industry:

    Content Integration

    Digital Asset Management         } --> Content Distribution -> Devices and Device

    Digital Rights Management        Operating Systems

Atkins distinguished between two types of rights - Contributor Rights (where the issues were around ownership/royalties), and Distributor Rights (Piracy issues). Focus had been mostly on the latter, but former was perhaps most significant as that's where the value points are, with the Intellectual Property owners.

For Atkins, DRM has an important role to play in 6 digital content processes: Contracts, Rights Management, Sales and Marketing, Distribution, Settlements, and Payment Collection.

Atknis made a few assertions to finish:

1. DRM is more than about technology. Technical, Legal and Social norms need to be considered.
   
2. DRM needs DAM (Digital Asset Management) to be effective, but development of Digital Asset Management is somewhat stalled, and not as sexy as content protection technologies.
   
3. DRM will not solve piracy - there is little prospect of uncrackable cryptography, as the history of the discipline shows.
   
4. DRM has the potential to reshape commerce. We've seen a lot of new models emerge, some have been successful, some not, but the only way to find out is to try them. "The model" will not emerge on a platter.

Next up Robert Hutchinson, Head of the Interface group at Australian Broadcasting Corporation's New Media Division. ABC new media are currently developing a new digital channel. Hutchinson's presentation made four basic points:

1. "Rights" are created by humans, they are the products of social relationships and those can't necessarily be equated with a digitally encoded set of "business rules".


2. ABC as a public broadcaster have a mandate to provide content to the Australian public, however the public want it. There is not the same pressure that the commercial broadcasters have to shore up existing business models.


3. There are no clear business models in this environment, so the ABC's DRM approach has been about gaining "experimental licenses", such as their one with APRA to broadcast music online. This allows payments to go to artists (ABC aims to ensure the talent gets residuals), and also allows APRA to dip their toes into this environment in a low-risk, low-impact way.


4. Because of the diversity of these deals ABC are not looking for an "all-in-one" DRM solution - instead they are building a technical and organisational "platform" that is modular - all these various deals and systems need to be independent but able to talk to each other.

[Disclaimer: I've previously provided consultancy services to ABC New Media - DB].

Up next was Kim Anderson, COO of Southern Star Entertainment and former head of Nine Digital. While Anderson claimed to have put together her presentation in the back of the taxi, it was obvious she had a clearer grasp of the business issues than the bulk of the speakers on the day. Probably not surprising as content companies have important business reasons to look to future business models - unlike the broadcasters, content companies are in a highly competitive environment where sitting on your laurels won't cut it.

Anderson began by noting that piracy is a question of scale - the question is how much of it can you take in your business model? It's not about complete eradication as that will never happen. Anderson noted that users want flexibility and portability, and that there is almost a complete contradiction between what users and rights holders want in terms of portability and flexibility. For Anderson this requires a real rethink about some of the basic business issues - "What are we buying? What are we selling?" That the COO of a major media company is asking these questions should indicate that they aren't merely for philosophical consideration or a part of neo-dotcom rhetoric - they strike right to the heart of what the emerging content industries will look like.

Distribution channels are becoming fewer, and there is a tendency to vertical integration e.g. Sony could pass digital music directly through to the Playstation. On the other hand, there are staggering amounts of money going into new areas like ringtones- APRA collected $2mil on ringtones last year, and in Japan approximately $US70mil in rights payments were collected.

The big question from Anderson's perspective was: "How willing is the industry to sit down and work on standards and systems for content distribution?" Anderson said that the industry needs to sort out tracking of content from a Free-to-air broadcast to a DVD so that appropriate rights payments can be made. I think she's making a similar kind of point to Jeff Jarvis at the end of this post: <http://www.buzzmachine.com/archives/2004_10_20.html#008237 >. In the end, at the retail side of things, it's still about delivering verified eyeballs to advertisers.

Having a momentary (possibly deliberate) lapse in the "political reality" department, I asked Anderson whether she thought the industry was going to be able to "sit down and sort it out" given what we'd just heard from Williams/Foxtel, that they intended to have their own system and everyone else could basically sort themselves out. Why would Foxtel want to join an industry-wide initiative? Anderson obviously wasn't going to say anything that would alienate one of their customers in Packer/PBL (who have an ownership stake in Foxtel) but nevertheless she noted that the subscription and retail models were fundamentally different and had different needs. According to Anderson, everyone wants to be the middleman. Flexible telcos may be well placed to capture billing, micropayments.

Atkins chipped in that in the case of US telcos - other than the two largest SBC and Bellsouth - none of them are making any money. Revenues are very close to Operating Expenditure, and it is becoming imperative for them to find ways to get new business. Retailing content could work.

Anderson reiterated that Free to Air is not dead - even without DRM. People still watch TV at 7pm over dinner. [Yes, but will they always watch free TV if there's a better product on cable? -DB ]. She noted that PVRs had been embraced not so much by retailers (i.e. broadcast networks) but by the cable operators, because cable operators could track what people were watching. It all goes back to tracking. PVRs challenge DVDs, and since DVDs make up 50% of content sales in the US there was an incentive for content providers to move slowly to avoid cannibalising this revenue stream.

Finally, talking about DRM/DAM and echoing Hutchinson's points, Anderson noted a need to move from systems to starting points; from product to platforms. Content isn't just be reused by broadcasters in itself, this reuse is within a larger strategy. DAM needs to be about reducing overheads in reuse rather than a fix-all solution. [Anderson also made a funny remark about Dominic Stone having tried to sell her fix-all DAM solutions in the past.]

PANEL 4

John Gillhespy, Senior Manager, Strategic Development and Planning, Microsoft Australia started the final, slightly sleepy session with what was essentially a product demo of the Windows Media Centre PC which had been launched in Sydney that morning. The audience loved it, probably because they could just sit back and look at the pretty pictures rather than thinking about how they're going to make any money.

The WMCPC comes with a remote control - "the PC at ten feet rather than 1-foot", that lets the user interact with "My Music", "My Photos", and "My Videos" in a slick, cable-TV like interface. Think iTunes/iPhoto meeting a really good cable Electronic Programme Guide (EPG). The new innovation comes with "MyTV", a PVR that can do VCR-style recording from your TV at set times. There's no way of having programme information automatically load so it's a bit more difficult than just saying "Record southpark every week", but still looks good. Plenty of DRM - it supports the broadcast flag so broadcasters can specify that the show can't be recorded. TV programmes can be burnt to DVD for archiving, but those DVDs can only be played on the Media Centre PC that burnt the DVD.

Gillhespy said that Windows was positioning itself as an "enabling platform" in content creation and distribution. Windows Media 10 supported indirect licensing models, so they've thought about content use for phones, etc. According to Gillhespy users "want to legitimately manage content". The WMC features short video content from a range of providers (e.g. Reuters), and Movies from CinemaNow that can be viewed in streaming video (approximately $US5 for viewing in a 24 hr period), and $20US to download and keep. This looked a lot like a content play but Gillhespy was keen to reiterate that "Microsoft is an applications and platform company" with nothing to do with conten - and their only content plays were the Xbox and MSN. That seemed a bit party-line to me and it looked like Microsoft were trying to position WMC in the Cable/MSO space - an interface to a range of content offerings, content partners would pay to be on the first page of featured videos rather than the 24th page.

Next up was Guy Gadney - General Manager, Content Programming for BigPond Media. Gadney began with the now-standard "reach out to the old media people" line, saying "We all think DRM is a good thing. To some extent we need to monitor and control what content is there." Gadney gave a brief overview of Bigpond's content programming - downloadable music, games, and movies. He looked at two "maturing trends" that will affect DRM, firstly user generated content such as blogs. Gadney noted that hardware manufacturers are making it easier for users to share audiovisual content (home movies, audio, etc.), and it is in their interest to expand the market for content sharing. Content creators need to be careful about how they respond, as they risk impining on legitimate use and/or closing down new business opportunities. He mentioned initiatives such as machinima, where users "make films" with high quality graphics for no budget, within the VR environment of a video game (http://www.machinima.com). Consumers want to take control of the media.

The second trend emerging was that Bigpond would "try to avoid changing users' behaviour". Discussing file sharing activity, he noted that the Internet was designed to share data - that's what users want to do. Rather than stopping this the challenge is how to make sharing profitable. Gadney made the point that the record industry claims that it's mission is to facilitate getting music to audiences but that its actual behaviour in the case of digital audio has been quite different. He noted the Columbia University study that a primary goal of user file sharing was about a social activity rather than cutting off a revenue stream. Gadney reminded us of the comment by David Hammerton, the student who broke iTunes's DRM - "I just don't like being locked out of stuff." He just wanted to be able to play them on his Linux box.

Where next for DRM? Gadney thought it was about understanding what people are doing. Trying to create a rights managed framework to support what users wanted, with both simplicity of use and making it difficult to bypass. But, according to Gadney, you can't just focus on making bypassing difficult, which was the current industry emphasis. In a very retro / dotcom finish, Gadney said "We're on day one of a hundred year business."

Katherine Sainty, Partner at Allens Arthur Robinson was the final speaker, and as she noted had the unenviable job of trying to add something new to the day. She reiterated that DRM is a business process issue, more than technology. Sainty offered a range of emerging issues with digital media devices:

• Devices must be robust to allow use in present / future business models
• Interoperability and compatibility of devices with content
• There is a tension between content companies and technology companies. Windows Media Centre shows signs of rapprochement, but it's technology companies that are most attuned to user demand.

There are also a range of digital content issues:

• Digital content is expensive to produce [? - DB], but cheap to duplicate
• Demand and advertising timelines are shrinking
• Price points and payment methods are unstable

Sainty noted that Digital Cameras were big drivers of electronics and peripherals purchases. It was a killer app for consumer digital media use. Sainty noted that "consumers were not as aware of the legal mores around fair use rights as they could be", and expressed her surprise that in conversation with students they told her that they would still use illegal file-sharing networks even if a legal option was available. [Mistaking the law for reality is possibly endemic in this industry - DB]. Gadney chipped in with a reminder that the users' behavioural context was important, echoing perhaps Berryman's discussion of user self-education at the beginning of the day.

I've been to a lot of academic conferences and industry conferences on new media, but it's only now, after a couple of years' break from the industry gigs, that I think I understand the differences. Academia is interested in ideas and evidence, while applications may be far from clear. In an industry context, everything is instrumental (including the networking :). Ideas and evidence need to be turned into an "insight", and become actionable, or they may as well not exist. As I spend more time outside the commercial sphere, my biases toward applied knowledge seem to be dissipating, as I grow increasingly less tolerant of the "inadmissible evidence" in the corporate knowledge system. Digital Rights Management is one of the key areas where the industry version of "what's possible" is way behind what's happening on the streets. This makes it a bit hard to swallow the rhetoric of market capitalism having moral superiority in a) the rational distribution of goods and services or b) innovation.

I came away from the seminar genuinely concerned about the ability of Australia to be a significant player in the emerging digital content environment. The only opportunities for new digital content players are in "datacasting", yet the genre-based definitions around who can and can't produce "TV-like" content are totally arbitrarily defined (or ill-defined) by the Australian government to the benefit of incumbent broadcasting networks. That might be acceptable if the incumbent networks were leading us into a bright digital future. But the focus of most of the content providers at the forum was on "content protection" and "legal protection", rather than rights management related to the development of new revenue streams. This is concerning when the locally produced share of content and ICT markets continues to decrease (see http://tinyurl.com/5wq9a).

This concern reached its depths at the end of the day when a representative from one of the broadcast TV networks opined from the floor how much they'd related to Kim Williams' presentation, despite him being a competitor: "He's dealing with exactly the same issues as us with digital." I couldn't believe it! What Williams outlined was Foxtel's strategy to secure vertical integration of content-distribution-delivery through hardware and software, completely away from the standards development that Anderson suggested was necessary for the industry as a whole. In other words, an embrace and extend strategy that will leave the free-to-air broadcasters increasingly dependent on Foxtel's architectural decisions. But, in the eyes of the broadcaster, at least it felt like Williams was discussing the issues they were used to, rather than all these digital people saying that the platforms required different business models. Call Kim Williams "the smiling assassin".

Even outside of the effects on content production, the failure to effectively develop digital content platforms will surely make it difficult for manufacturers like Panasonic to produce innovative, high-end consumer electronics. Such companies will be sacrificed to protect Australian broadcast media companies whose business model rests on limiting competition - so much for Australia as the "clever country"!

Danny Butt
http://www.dannybutt.net/

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