DRM is dying. It's a statement being echoed with increasing frequency around the Web over the last few weeks, and is perhaps best articulated in this Billboard article. Antony Bruno lays out his case for why 2007 will be the year that the major labels "get it" and stop alienating their customers with restrictive DRM schemes. But before music lovers start dancing on the ashes of the digital locks they hate so much, let's all set down the New Year's champagne and indulge in a spot of pessimism. DRM is dying?

Yes, there are plenty of signs that DRM as we know it is changing, perhaps even withering on the warm California grapevine where it's been growing for so long. Yahoo has conducted several experiments in the last year, selling MP3-encoded versions of selected popular songs. The Sony rootkit debacle showed the general public what a bad idea some of these schemes could be. Every P2P company still in existence seems to be moving towards some kind of paid-downloads model, and some hope to do this without adding DRM. And Amazon is rumored to be eyeing the online music store market, but only if it can offer MP3s (though recall that Amazon's last attempt at whipping iTunes, its Unbox music service has hardly managed to unseat the leader). Et cetera, ad nauseum, ad infinitum.

And while it's certainly possible that the music labels will collectively find salvation like a late-70's Dylan, we're (reluctantly) going on record with the opposite prediction: it ain't going to happen in 2007. Sure, there will be plenty of experimenting. Labels have certainly realized that DRM isn't the answer to their many woes, and with declining overall album sales, they'll be more willing to take chances. Great! But there's a powerful force standing in the way of this DRM-free panacea, and it might not be the one you expect: Apple, Inc.

The gatekeeper

As the online music and movie store with the biggest sales numbers and mindshare (no one else even comes close in the US), Apple is a clear trailblazer. It sets the trends; it owns the market. Labels and studios think long and hard before crossing Apple if they want their content to be available on iTunes. In fact, Apple's power is so strong that when the iTunes Store gained video, the studios were hesitant to join, and so far only Paramount and Disney have jumped on board.

Why? Apple is a stalwart on its pricing scheme, and the video guys are afraid because they saw the public battle between Apple and the music companies. When labels demanded pricing flexibility, Steve Jobs called them greedy. And Steve won the argument.

Apple stands to benefit greatly by keeping the FairPlay DRM system up and running. The lock-in afforded by FairPlay creates an Apple ecosystem that essentially ties the iPod to iTunes and to Apple, at least for commercial transactions. Someone has even launched an antitrust suit against Apple over this, though the suit's specific claims are rather broad.

The symbiotic relationship between iTunes and the iPod has been so profitable for Apple that Microsoft has blatantly ripped it off for its new Zune music player. Apple has managed to create an ecosystem populated with high-margin devices; the company's overall gross margins are nearly 30 percent, and so even if iTunes were used solely to drive sales of iPods, it would be worth it for Apple to run the store.

Apple has, in an important sense, become a digital gatekeeper for media companies; iTunes is the best way to reach consumers with music, movies, podcasts, and television. Content companies have paid close attention to the success of iTunes; they've seen how it saved The Office, pushed billions of dollars in revenue to Disney, and established itself as such a de facto standard on college campuses that students would rather use iTunes than free alternatives. The content companies now need Jobs & Co. as much as Apple needs them.

Control

Content owners may not like this, but it's the situation that they are faced with in 2007. With iPods commanding such a large part of the player market, and iTunes integration so complete that it's the easiest option for new iPod owners in search of more music, Apple can present the best case for DRM to the industry: the success of the iTunes Store. Given that iTunes is now the #5 music retailer in the US and rising, the Apple mantra isn't pro-DRM or anti-DRM, but that "the experience is king." If Apple opens its DRM, that walled-garden experience could be degraded as customers migrate to other stores with lower prices but more technical problems. This creates a scenario in which we think Apple can work its influence to keep DRM alive and well in the face of labels showing doubts—and we're not at all sure that the labels' doubts are that strong.

Apart from independent labels, no serious, sustained experiment in offering unprotected files has been made by any of the major players in the film, television, or movie businesses. In fact, Hollywood has spent the last several years drawing up two new draconian forms of DRM (AACS and BD+) to protect next-generation video content. They have also been lobbying like mad for Congressional action on broadcast flags, and they've gone paranoid about putting CableCARDs in home-built Vista PCs (it won't be possible). The content owners want to be in control.

No, what the content idustry and the consumer electronics industry alike want is not the end of DRM, but a truly interoperable, robust DRM that puts them in control of their content without ceding too much power to one player (Apple). But now that PlaysForSure has gone bust in all but name and Apple steadfastly refuses to license Fairplay, that's not going to happen in the music industry. And Apple's toehold in the movie and TV business is rapidly becoming a beachhead. The only way to bypass Apple and still reach the massive iPod demographic is to throw open the digital gates and begin offering content in open MP3 and MPEG-4 formats that can still be played on Apple's devices—but losing control this way is just as scary to content owners as losing control to Apple.

DRM is dying? Not while Apple lives.