Youtube generation no match for the man

Who's calling the shots when it comes to putting DRM restrictions into hardware?

Global IT spending is around $1.3tr, according to Tim Bajarin, principal analyst at Creative Strategies. An ever-increasing proportion of this is controlled by consumers: the US consumer electronics industry alone is expected to earn revenues of $170bn in 2008, says the Consu-mer Electronics Association (CEA). Consumers' influence on purchasing decisions also reaches parts of the communi-cations and computing sectors.

The IT sector is underpinned by a global semiconductor industry that was worth $256bn in 2007, according to the Semiconductor Industry Association. Of that total, 17.2 per cent is directly attributed to the consumer market, while a further 20.9 per cent goes on the communications sector and46 per cent on computing. 

Meanwhile, the global film industry grossed $26.7bn at the box office in 2007, according to the Motion Picture Association of America. The US music industry turns over $10.4bn, according to figures from the Recording Industry Association of America. Movie rentals, Bollywood and pornography all help bulk up the content providers' overall revenue numbers. But it's clear that even at the most generous estimates, the consumer hardware industry is worth far more to the global economy than the output of the labels and studios. And yet the hardware industry still has to dance to the content providers' tune, struggling with protection schemes that slow the development of its markets, limit what consumers can do with the content, and usually provide ephemeral protection.

The issue is becoming especially acute for the YouTube generation, which is, if you believe the hype, becoming as much a producer as it is a consumer. Content protection schemes mandated by film producers and music companies still define how we can use media, even in a world where people are increasingly making their own entertainment.Bajarin moderated a panel discussion on content and media during March's Globalpress Electronics Summit in San Francisco. He said that by 2010 there would be three billion digital consumers in the world, up from just 500 million in 1995. By 2010, 1.8 billion devices that can connect to the Internet would be sold each year "andwe are probably only half way through our journey from analogue to digital".

Bajarin estimated Apple has sold 150 million iPods, that1.4 billion cellphones get sold each year, of which 25 per cent will be smartphones by the end of 2010, and that the PC will remain a key way of accessing content. In the developing world the cellphone is increasingly important for accessing content: Bajarin says that cell phone use increased by 185 per cent in the Ukraine and by 114 per cent in Vietnam during 2007. The three basic ways of accessing content that many in the developed world enjoy, through the screens of PCs, TVs and cellphones, will soon be joined by a 'fourth screen' in iPhones and portable gaming consoles, and even a 'fifth screen' in cars.
"Expectations change," he added. "People want their data to be accessible wherever they are, connected to the Internet and to other people."Stuart McKechnie, strategic marketing director for IC company Zoran, says that the number of TVs, cameras and other digital devices that are directly connected to the Internet would change the whole content picture."You may have 200 channels now and in a way it is too many, but it's also too few," he says. "There may be 2,000 or 20,000 channels or even three billion channels that will be available."

But the large content companies, such as Hollywood film studios, are aiming to maintain their grip on the distribution technology, which is having a knock-on effect on hardware makers. McKechnie says that chip providers had to understand the whole ecosystem of content provision, including the needs of the providers.
"The content owners see this [large market of connected devices] as an opportunity and a threat," he says. "The opportunity is to put together a truly secure service. Imagine a chip with a decryption key inside, where encrypted content goes in one side and video signals come out the other. This is the kind of solution that is exciting the content owners because it promises a more secure future."
Asked whether such schemes were irrelevant in a world of DVD rippers and BitTorrent downloads, Bajarin said: "The studios do understand the reality but are hoping to inject some legal measures to [control access] by certain groups."
McKechnie says that the key issue will be what happens when the younger generation, used to sharing content freely, grows up.

Battle of the hacks

Bruce Watkins, CEO of Pulse-LINK, which makes chips to distribute HDTV signals over wireless links, coax and powerlines, says there would continue to be a battle between the latest encryption technol-ogies and the latest hacks."We will sell more chips through what the service providers decide to do on the front-end than what consumers decide to do on the back," he says, referring to the power of distributors, such as cable TV, to channel high-value content to consumers in ways that its producers regard as secure.Asked whether the continuing focus on content control and protection was a 19th century business model for a 21st century world, Watkins says: "Yes, but it is just what we're going to have to do."

Circumstances may help out the hardware makers. The benefits of selling unprotected content that customers can use are beginning to be more widely understood. Apple, the hardware company that taught the music industry how to sell digital music with the iTunes store, started out with a proprietary content protection system. It has since sold more than four billion downloads. It has now persuaded the music industry to allow it to sell unprotected music, albeit initially at a slight premium.Compare and contrast with the difficulties recently faced by Microsoft, which has the same appetite for control as Apple. Microsoft's MSN Music service was launched as a competitor to iTunes, relying on a digital rights management (DRM) system to control the way customers used the music they bought from the service. The service closed at the end of 2006 to be replaced with a service linked to Microsoft's Zune music player. Last week Microsoft announced it would shut the servers from which MSN Music users could get authorisation keys on 31 August this year. If you want to move your music to another PC after that, you can't.Rob Bennett, general manager of entertainment, video, and sports for MSN, told that the reason for shutting down the key authorisation servers was that "every time there is an operating system upgrade, the DRM equation gets complex very quickly. Every time, you saw support issues. People would call in because they couldn't download licenses. We had to write new code, new configurations each time".

He also said that Microsoft had always wanted to provide music without DRM, but was unable to persuade the labels of the virtues of the approach at the time. "Now, the industry is making progress," Bennett claims. "The labels are understanding the downside of DRM when it's used the way they wanted to use it: they end up punishing the users who bought music legally more than those who want to circumvent the system." 

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