Digital Rights Management: Wal-Mart's Double-Edged Sword

The best workable model for legal digital downloads has been under debate since the fall of Napster and the rise of the iTunes music store. The solution, for many digital download companies, has been some sort of "digital rights management." DRM is a feature embedded within downloaded music files that control how that file may be used. It could control, for instance, how many times a song may be burned to CD, or if it may be burned at all. The exact DRM regulations vary from digital download provider, and the deals they have with the labels providing the recordings.

Wal-Mart Music sent out an email on Sept. 26th to all its digital download service members. It informed them that beginning October 9th, they would no longer be offering DRM support. The Wal-Mart Music Store (seen at the right) began selling DRM-free only downloads starting in February of 2008. This means that any song that was purchased before February 2008 would no have the DRM system to support it, and so would no longer work at all. Their advice was to back up those songs on a CD, to be ripped back off onto your hard-drive and in doing so, losing the DRM limitations.

It is impressive that Wal-Mart would offer nothing but DRM-free downloads at the same price as they offered before. That said, it seems unfair, irresponsible, unethical and even greedy that those songs which were legally purchased would simply cease to work, since many people will be forced to re-buy the same songs they will lose. The only option they offer is to burn CD's in their Wal-Mart default .wma format and rip them back in .mp3 format which means serious loss of quality in the reformatting. This, along with the sheer number of music files people have, makes Wal-Mart's proposed solution a fairly poor one.

If the top music retailer in the country is moving towards a DRM-free format, certainly the whole industry will move that way. This will prove beneficial to consumers and fans, as long as older downloaded songs do not become obsolete. In my research of Wal-Mart's issue, I offered my thoughts in the commentary of two different heavily discussed blogs. The first was on www.readwriteweb.com, the post was titled Wal-Mart Gives Consumers Number 1 Reason Why DRM is Not the Answer. The second was on www.boingboing.net titled Wal*Mart shutting down DRM server, nuking your music collection. The first criticizes the notion of DRM, specifically citing Wal-Mart's move as an example of " the music industry... struggling to gain a foot-hold in the battle with online piracy." The latter argues that by making the older songs obsolete, Wal-Mart is basically punishing those who acted legally, because those with illegal downloads have no such issues with DRM. As well as posting my comments on these blogs, I have posted them below.



Wal-Mart Gives Consumers Number 1 Reason Why DRM is Not the Answer
Post:
I certainly appreciate your laments on the downfalls of DRM protected songs. They cause frustration and inconvience invariably. However, I do think that it is important as well to consider and remember why DRM was put into place to begin with. Not only from a business point of view, but from a historical point of view as well. Granted, it was not too long ago, but the music industry has been forced to change quite a bit over the past 10 years. At the time when iTunes was just unleashing the iTunes Store, Napster had just been shutdown, peer to peer was king of digital downloads, and the record labels were terrified of the idea of any sort of downloading of music. They tried to protect their intellectual property in any way possible, even creating CDs that couldn't be recognized by a computer at all, and part of this protection was the use of DRM in audio files. While it is certainly a hassle to deal with, it was necessary to have for the record labels to get the piece of mind they needed to allow iTunes and all subsequent legal download businesses to get started. Now, the distributors of digital downloads are slowly moving towards rescinding DRM restrictions, and I think you are entirely correct in saying that Wal-Mart has done a poor job of making that move. Whether through oversight or lack of caring, they have not considered the consumer at all. ITunes also is already offering some of their songs in a DRM-free format, and for previously downloaded songs, they offer a 30-cent upgrade. Even without the upgrade, the songs will not become obsolete. Wal-Mart should certainly offer a similiar protection program for those who will otherwise be left with inoperative audio files.



Wal*Mart shutting down DRM server, nuking your music collection.
Post:
Thank you for bringing up the relatively recent moral dilemma that DRM and digital downloads present. The way that Wal-Mart has dealt with moving away from DRM songs is just one more reason to shy away from legal digital downloads. You now can't even be sure that if you do purchase something legally, it will continue to play for years to come. While you don't have to have the hassle of DRM downloading through peer to peer networks, you do have to worry about being sued by the RIAA, and the potential heavy conscience from stealing intellectual property. According to slyck.com, you have a higher chance of being killed in day-to-day living than you do of being sued by the RIAA (http://www.slyck.com/news.php?story=769), but that doesn't mean it can't happen to you. Jammie Thomas is a single mother from Minnesota who was the first person to let an RIAA suit go to trial. She lost the case and had to pay $222,000. Copyright infringement is not cheap to mess with if you do get caught. This hasn't stopped the youth of today, and the disregard for musical intellectual property is changing the way that the industry works. A survey of British kids ages 14-24 revealed that "Around 90% of respondents now own an MP3 player. They contain an average of 1770 tracks - half of which have not been paid for." (http://www.futureofmusicbook.com/2008/06/18/survey-of-british-youth/) This is astounding. Along with new technology comes the slow adoption of it, and eventually the exploration and regulation of it's limitations. This is what happened with file sharing, and now with DRM. They are being pushed into the technological age.

SongVest: The Music Memorabilia That Pays

Online auctions have proven themselves to be one of the most effective and lucrative ways to make money on the internet. People have sold nearly everything on eBay in the past, so it is a wonder that song royalties have never made the list until now. A new company called SongVest has taken the online auction business model and merged it with the business of the distribution of royalties. Customers bid to own a share of certain songs that are offered, including songs performed by Bon Jovi, Aerosmith, Garth Brooks and more. The winning bid for each song receives a personalized plaque, an RIAA-certified gold or platinum album award, other commemorative items, as well as the royalties awarded on the song prorated to the percentage of the song they own. They get paid whenever the songwriter does. Songwriter Mark Hudson, who has several songs that will be auctioned on SongVest, said: "No one is buying records. This to me is just another angle." In my view, SongVest is an innovative and revitalizing attempt to glean new income streams in an industry that has seen declining profits of late. Although the system doesn't seem completely ideal for the writers to me, this is a good way for them to capitalize in the changing music industry.

Whenever a song is licensed, anywhere from a TV ad to the radio, or a copy of a song is purchased, a portion of the money is paid in royalties to the songwriter. This is not to be confused with the royalties paid to the artist (granted they are sometimes the same person). There are two different types of copyrights at work, one is regarding the recording itself, and other is regarding the song itself, as composed of a written tune and lyrics. For instance Lee Hazlewood wrote a song called, "These Boots Are Made for Walkin,'" which became popular as performed by Nancy Sinatra in 1966, and again in 2005 when it was recorded by Jessica Simpson. If either song is licensed (e.g. used in a TV ad) or purchased (e.g. buying the album), Lee Hazlewood would receive his share of the royalties based on the song copyright through the song publisher (as seen on the right), while the artist would receive her portion of royalties based on the recording copyright through her record label. It is Lee Hazlewood's portion of royalties that SongVest would be auctioning off to the highest paying Simpson or Sinatra fan. The song copyright still belongs in full to the songwriter and publisher, so buying a share of the royalties does not mean buying a vote in how the song may be used.

The auctions work in a way very similar to eBay. A seller can determine a minimum bid, the duration of the auction, and what percentage of their song royalties will be auctioned. Although the first official auction will take place from October 4th through October 18th, SongVest has found success in its smaller test auctions. The first one had a $25,000 buyer for 25% royalty shares of two songs by the 80's Christian-Metal band Stryper. The picture on the left shows GB Leighton fan Toni Reynolds standing with Leighton and her newly acquired 50% share of his platinum song. When a customer wins an auction, SongVest takes responsibility for collecting and distributing the royalties to the winning bidder, after garnering 25-40% off the top of the sale price. With such huge names already in their repertoire, SongVest is expecting as much as $250,000 dollars to be spent on some of the songs in their first auction.

Song royalties are purchased in bundles all of the time, but "They're bought and sold on a pure investment basis," says David Prohaska, co-founder. "What about people who really love the music?" SongVest markets their auctions as the ultimate purchase in memorabilia, not as an investment to make money. It connects the songwriters to the fans, and that is where the value comes from. This is crucial to the preservation of good songwriters in the music industry. While a performing artist can take a top hit and tour the country with it, making hundreds of thousands of dollars per concert, the songwriter doesn't have that ability or income source to fall back on. With the recent and worsening decline of album sales, SongVest, and any other creative services that will emerge if SongVest is successful, help the songwriter capitalize on, and be compensated for their work.

It must, however, be noted that the deal is not completely ideal for the songwriter. A cut of 25-40% can easily be seen as gouging the songwriter, who may be in need of cash (a Hollywood agent only takes a 10% cut). As an Idolator.com writer assessed: "strapped singers and broke bands will happily treat their art like eBay merchandise, provided it takes care of those child-support payments and student loans." In essence, he asserts that SongVest helps songwriting artists sell-out to "the man." This may be true, but the songwriters do not give up control of the intellectual property, only forfeit some of the royalties for a price over ten times what they would receive in a standard music publishing sale, where they would no longer control the song. For a business deal similar to consignment, 40% is a large piece of the pie, but on the other hand making 60% of $250,000 simply because a rich patron really liked the theme to The Monkees would be too good to pass up for many songwriters.