Digital Rights Management and the Bottom Line

By Susan Marks  |  Posted 10-10-2002

Digital Rights Management and the Bottom Line

Sony had a problem. The hit British rock band, Oasis, wanted to create buzz for its latest CD, Heathen Chemistry, by promoting certain songs before the CD was to hit store shelves last month. Trouble was, the band's record company, Big Brother Recordings Ltd., an arm of Sony Music Entertainment Inc., knew that giving fans advance access to music tracks would be tantamount to profit suicide. The songs would surely find their way online and onto various peer-to-peer networks, letting millions of people download them. Not only would that cool anticipation for the new album; actual sales also would suffer.

Then came an idea—and an important new test of thinking in the post-Napster world of digital commerce. On June 23, nearly two million Britons opened their Sunday edition of the London Times and found a free CD containing three not-yet-released song clips from the band's new album.

But this was no ordinary promotional CD: Using new digital content controls, Sony had encoded it with instructions that, in effect, banned people from playing the three clips for more than just a few times on their home PCs. Fans also were unable to copy the music file and post it to file-sharing networks—thereby making it harder to steal. Oasis fans who wanted to hear more had to link to the band's Web site and preorder the new album from U.K.-based retailer HMV—or wait until it was released. The idea: Use software code not to ban, but to create buzz for new products without getting burned in the process.

Did it work for Oasis? Preorders of the album exceeded company expectations by 30,000 during the week following the Sunday Times' promotion, and Oasis' record company gained data from 50,000 fans who registered online—new information that could be used to sell more CDs in the future. HMV was able to raise the number of visitors to its retail Web site, and even the Sunday Times was able to score a win in the deal: Circulation that day was 300,000—its second-highest Sunday circulation ever.

Guarding Data

Guarding Data

With theft of intellectual property estimated in the billions last year, Sony appears to have found a way to hinder cyberthieves by arming its music with digital content controls that regulate use. Says Scott Burnett, marketing director of IBM's Digital Media, which helped Sony on the project, "Digital content controls can be used to create super-distribution rights and tie them not just to music but to any type of information, allowing it to be shared—but only under certain conditions. The opportunities for businesses of all types are enormous."

Sony is not alone in contemplating the possibilities. Law firms, financial services companies and publishers are also getting into the act—to thwart theft, yes—but also to rethink marketing strategy and expand the use of online collaboration to create products with less worry over leaks. Indeed, what had been seen as a movement to halt pro-Napster forces dead in their tracks has evolved into a new way to sell across a variety of industries. From media and communications powerhouse Sony to animal health researcher Vetstream Ltd., some companies are no longer so afraid to see the Net as a viable distribution channel, and are willing to experiment with a slew of expensive new software and strategies aimed at fighting theft, ensuring privacy, encouraging collaboration—and creating new business models.

It's no wonder interest in digital content controls is growing. In a September 2002 survey by PricewaterhouseCoopers and the U.S. Chamber of Commerce, 138 companies said they lost between $53 billion and $59 billion in 2001 from theft of their intellectual property and proprietary information. The most commonly cited areas of theft? Research, customer lists and financial data. And the greatest impact of such thefts were increased legal fees, loss of revenue and loss of competitive advantage. Further, while three fourths of those surveyed said their company's intellectual property was vital to their success, only 45 percent said management was concerned about information loss and was taking the necessary precautions. Some companies, though, are starting to see some results.

Congressional Quarterly Inc., for example, says that the number of people who subscribe to its CQ Daily Monitor rose by 7 percent last year, thanks to the use of new digital content controls. Meanwhile, software game maker Electronic Arts says in-house controls on digital content, which limit distribution of original artwork beyond company walls, convinced EA executives to boost its use of online collaboration among far-flung employees to produce computer games. This has speeded time to market—by weeks for some products, says CIO Marc West.

Not Just for Music

Not Just for Music

Companies outside the entertainment industry, meanwhile, are testing digital content controls to see if they can generate new customer leads. Houston-based financial services firm Simmons & Company International, for example, is tracking who is getting its buy/sell recommendations over the Web for free. Explains IT vice president Lenny Schad: "We can follow the path of our reports online to get an idea of potential customers."

Joshua Duhl, a senior consultant with technology researcher IDC, predicts a rise of nearly 60 percent in sales of digital content control software over the next four years, to almost $1 billion by 2006. Driving those numbers, Duhl says, is the recent and aggressive push by heavy-hitters like IBM and Microsoft Corp. to create, test and market the new technologies.

And momentum is growing in other ways. In February, IBM opened what it calls its Digital Media Factory to develop new digital content controls for diverse types of companies, from hospitals in need of ways to transmit sensitive data online in compliance with new federal privacy rules, to airline makers wanting to transmit jetliner safety data from field inspectors to headquarters without leaks to rivals. "Napster and the MP3 revolution lit a fire under the entertainment industry, but it also woke up other types of businesses to the consequences of failing to keep control of some information," says IBM's Burnett. "Executives are starting to think about how they're going to allow for distribution of digital content within their worlds. What should we do as our content and capabilities move increasingly to the Net or to a digital platform? Content controls will enable us to create whole new business models." Jeffrey Hunker, dean of the H. John Heinz III School of Public Policy and Management at Carnegie Mellon University, agrees, adding: "The whole issue of digital data controls is one of a handful of the most important issues that will shape the nature of IT as a foundation for our economy and society."

To be sure, many people still don't believe that sharing files over the Web constitutes piracy or that there should be restrictions on what is distributed there. You can give a friend a CD; why shouldn't you be able to share it online? But companies that aren't experimenting with new control technologies could be hurting themselves, says Mike McGuire, emerging technologies and platforms analyst with Gartner Inc. "If it's on your network, and it's your property or someone else's, you're going to be dealing with digital content controls, either now or later," he says.

Electronic Logbooks

Electronic Logbooks

Stripped to their essence, digital content controls comprise a variety of technology encryption schemes with built-in e-business cash registers or logbooks that show or govern who's using what—and when, and for how long. Content is encoded, and those who own the content give users a key that requires them to do something—pay a fee, perhaps, or provide an e-mail address. Digital content controls deliver the protection, but it's up to the content owners to set the conditions. For example, vendor ContentGuard Inc., in which Microsoft has invested heavily, uses a "multiple key" approach. Anyone who receives bootleg content would have to crack into it all over again—in effect, preventing hackers from distributing what they've just won from hacking. Digital controls vendor Authentica Inc., on the other hand, lets a content owner like Simmons encode its data so that it essentially self-destructs if forwarded, or if terms of use are violated. The controls also allow for some flexibility: Simmons can leak some data—but keep the rest, a decision that took a lot of discussion to reach, Schad says.

At Simmons, company executives originally just wanted to cut publishing costs, but worried that research reports would fall into the wrong hands if Simmons were to distribute them more cheaply online. "You send stuff off to a client, but then, gee, he might be turning around and e-mailing it to his brother-in-law who works for your rival, who then forwards it on to God only knows who," Schad says. "We wanted to be able to control and specify who gets our information. We wanted to say they couldn't forward stuff or, in some cases, even print it out. We wanted to take control of our information."

At first, Simmons considered using digital content controls to prohibit all content from being forwarded. But after much discussion, the company decided that a few leaks might not be so bad. "We didn't want to put the handcuffs on so tight that the customers felt like, you know, our company has turned into Big Brother and people wouldn't want to do business with us anymore," Schad says. Indeed, "we wanted to see where this information was ending up, as a way to find out if there's other business out there that we should be tapping into." The company has been testing the technology for months, and later this month it plans to go live with a new e-mail system that tracks reports sent to clients. Schad expects to generate at least several hundred sales leads from the experiment.

Meanwhile, Schad says, Simmons has achieved its original objective, cutting publishing costs in half, or by about $150,000 so far this year. Next year, he says, it will be more. "We're a small company, and the economic conditions of the last year have hit most investment banking firms hard, so you're trying to go after whatever kind of cost-cutting you can," he says.

Digital content controls can also help speed response times to inquiries and requests for permissions, cutting by days, if not weeks, the time it takes a company to produce a new film, book or piece of music. Chan Preston, the managing director of the digital content management practice at KPMG Consulting Inc., says Net-distribution methods run head-on into paper-based processes that most organizations still follow to locate a piece of content's rights of use and ownership.

Preston says large companies might have literally millions of digital assets, each with their own set of usage rights and permissions filed in paper records. At Simon & Schuster Inc., for example, CIO Anne Mander has created a Digital Asset Library to centralize materials such as book jackets, author photos and sales sheets—data previously stored on zip drives or in someone's file drawer—into a single database. Mander says it's eliminated the need for dozens of employees whose jobs were to simply find this information and copy it each time one of S&S's executives requested it. "Much of this information would be scattered all over the company," Mander says. "Now it's in one central place, and we're getting faster now at producing books as a result."

Battle Royale

Battle Royale

Yet for all of its potential, digital content controls are still in their infancy—and they're controversial. Privacy and civil liberties activists, for example, say digital content controls might end up chilling the free exchange of ideas over the Web while at the same time subjecting customers to technologies that would track their movements online, beyond those tied directly to how they use a piece of content. "As a nation, we haven't yet come to any sort of reconciliation about what an effective model is," says Carnegie Mellon's Hunker.

But the chief reason digital content controls aren't more widespread yet is the lack of technology standards governing their use and design. "In some systems, it's hard to exchange content [encoded with controls] from one system to another," says Charles Tobermann, vice president of digital media technologies for Vivendi Universal Net, the Internet arm of Paris-based Vivendi Universal.

Standards Ahead

One central standard, though, may not be far off. For more than a year, a variety of organizations with names like IPR Systems and OASIS—not the rock band, but a consortium of companies seeking standards—have been floating proposals. In recent months, the standards battle has boiled down to a fight between the giants—Microsoft on one side and IBM and streaming media technology developer RealNetworks Inc. and its partners on the other. IBM's digital control technologies, for example—what the rock band Oasis and Sony used to create buzz for the group's new CD—is designed on open source software code, making it compatible with diverse systems at a variety of companies. Meanwhile, ContentGuard, a company spun out of Xerox Corp. in 2000 and backed by Microsoft, is focused primarily on promoting its chosen standard, Extensible Rights Markup Language, or XrML, a set of rules that codifies the ways proprietary software can exchange information using digital content controls. For the first time in May, the Rights Language Technical Committee of the OASIS group met with major content owners to push for consensus.

While it's all getting sorted out, KPMG's Preston suggests that companies might want to decide early on whether they can profit from some form of digital controls. At some companies, Preston says, CIOs have formed cross-department teams to determine which company data is proprietary and which might generate revenue, such as copyrights, patents and trademarks as well as e-versions of contracts, leases, research and even back-of-the-napkin drawings for new designs. Chances are, it's all stored in any number of databases somewhere. "Many companies are holding digital assets they don't even realize are assets," says Emily Freeman, a vice president at AIG eBusiness Risk Solutions, a New York-based insurance company.

Yet to many in the digital content control movement, the most promising short-term revenue-producing use of the technologies today is in marketing. IBM's Burnett says IBM is seeing more demand for the technology as a way to create online buzz for products in advance of sales.

Down the road? Content metering, say analysts, that uses digital content controls to charge people for how long they use content, creating new business models for online video rental shops, for example, or online book rentals. Also on the horizon are wireless applications. In July, IBM announced it would collaborate with Nokia to put content controls onto a variety of wireless devices for both business and consumer applications. Says Carnegie Mellon's Hunker: "I think the biggest thing Napster did was teach us the limits of our imaginations. A lot of companies felt defeated, and shied away from the Web. That's starting to change now." Adds Simmons' Schad: "When it comes to online piracy now, the gloves are coming off." His new motto? "Don't get mad—get even."

Susan J. Marks is a Denver-based freelance writer. Additional reporting was done by Debra D'Agostino, CIO Insight's copy chief.

Digital Armor

Digital Armor

A wide range of new technology is being developed to prevent online piracy of ideas and creative work, from music to business research. Some embed usage rights into the information being distributed, restricting how it can be used, what can be seen and how often. Other controls use software codes to notify content owners each time his or her work changes hands or is used in a new way. Some even force data to self-destruct if used in violation of agreements governing use. Here are some of the most common:

ENCRYPTION ENVELOPE (DRM)

Uses an algorithm to create a secure container around a piece of content and allows the content owner to determine how that content will be used. Those usage terms, sometimes known as Digital Rights Management agreements, are then enforced by software.

advantage | Always-on encryption keeps content away from third parties while in user hands and prevents data from being modified.

disadvantage | Integration with other software may be hard. Also, terms-of-use enforcement could turn off some users.

COPYRIGHT AND LICENSING

Software that binds content users to specific ownership and licensing rules dictating how digital data can be used, enabling intellectual property owners to collect royalties and identify violators.

advantage | Gives content owners more control over who sees and uses their information.

disadvantage | It's not foolproof; some password and license-sharing still goes on.

DIGITAL WATERMARKING

Software that allows owners of content to insert a digital "stamp" or unique identifier into their data, which acts as a copyright statement and travels with it throughout its use. The original file is stored, and the watermarked file is distributed for use.

advantage | Provides a simple way to prove ownership of content; deters some infringement and unauthorized use.

disadvantage | Some watermarks can be hacked and erased from the file. Insertion requires complex and sophisticated programming.

FINANCIAL CLEARINGHOUSE SERVICES

Software and services that process financial transactions such as debiting and crediting accounts, provide financial verification and authentication, and manage royalties.

advantage | Ensures more secure financial transactions.

disadvantage | Lack of standards may hamper widespread interoperability and systems integration.

TRACKING

Software and services for tracking and reporting who has what content, how it has been used, when it was used, and for what purpose. Includes audit trails, logs and usage reports, and digital fingerprinting.

advantage | Allows for content metering based on time and detailed usage conditions. Also enables automatic product feedback.

disadvantage | Employees, strategic partners and customers may resent limits on viewing certain content and technologies that closely track human behaviors.

SOURCES: IDC; CIO Insight

Fighting Back

Fighting Back

Businesses are using new content controls not only to curb theft but also to save money, boost productivity and plump up the bottom line. Here's how:

BOOST REVENUES

company | Congressional Quarterly Inc.

challenge | Washington, D.C.-based publisher of government news and analysis sought to stop unauthorized sharing of its subscription-only CQ Daily Monitor.

solution | Web-based delivery with user-access controls has enabled CQ to increase subscriptions by 7 percent and reduce unauthorized copying by 5 percent to 10 percent.

INCREASE PRODUCTIVITY

company | Electronic Arts, Inc.

challenge | The $1.7 billion game software developer was reluctant to do more in-house collaboration online thanks to employee piracy concerns.

solution | Software that wraps game designs in an encryption envelope helps EA boost online collaboration, speeding time to market.

CUT COSTS

company | Simmons & Co. International

challenge | This small financial services firm sought to cut publication costs by moving to more distribution via the Web, but worried about security.

solution | Tracking software lets Simmons know who is using its products—enabling it to determine unauthorized use and identify potential new customers in order to boost revenues. Side benefit: a reduction of $150,000 this year in paper publication costs, now that execs feel more comfortable increasing digital distribution of corporate research.

EXPAND MARKETS

company | Vetstream, Ltd.

challenge | The U.K.-based animal medical research firm needed an inexpensive way to boost revenues, chiefly by targeting distribution of its subscription-only reports to the more than 17,000 veterinarians in the U.S.

solution | Software that provides access only to licensed users has enabled the company to sell online subscriptions, which Vetstream hopes will boost revenues five-fold.

STREAMLINE PRODUCTION

company | Simon & Schuster

challenge | Book jacket, author photos and sales data for each book were scattered all over the company in paper files and on zip drives.

solution | A new "digital asset library" centralizes data and stipulates terms of use, enabling easy access and faster book production. Fewer employees are now needed to retrieve data on demand.

CURB THEFT

company | Off Wall Street Consulting Group

challenge | This publisher of buy/sell recommendations for professional money managers had trouble controlling access to its $50,000-per-year-and-up, subscription-only reports. Faxed delivery led to frequent copying by analysts and data leaks that would affect share prices.

solution | Encrypted Inter-net delivery and post-delivery controls like automatic watermarking cut leaks and resulted in a 20 percent hike in subscriptions in 2001.

Resources

Resources

Web Sites

www.idrm.org
Internet Digital Rights Management, an independent research group formed to track issues and technologies being developed to control content distribution over the Internet

Articles

"Make New Code Not War," by Lawrence Lessig, June 2002, CIO Insight

"Trends in Proprietary Information Loss" Survey Report, Sept. 2002, PricewaterhouseCoopers, U.S. Chamber of Commerce and ASIS Foundation

Books

Digital Rights Management: Business and Technology
By Bill Rosenbatt, Bill Trippe and Stephen Mooney
John Wiley & Sons, 2001