Economist article – context is everything.

Economist article with oft used Disney exec quote on DRM:

“The trouble starts here, with a bewildering list of acronyms that no ordinary consumer should ever have to know, but currently needs to know, to set up a digital home. The Moving Picture Experts Group (MPEG) is an industry body that defines widely used codecs such as MPEG-2 for video and MP3 for audio. But the big vendors prefer their own codecs—Microsoft its WM9 (short for Windows-Media-9), Apple, the market leader in online music sales, its AAC, and so on.

In DRM, the situation is even more chaotic. Microsoft pushes its Windows DRM; RealNetworks, which makes rival media software, has Helix; Sony has OpenMG; Apple likes FairPlay, and so on. The upshot is that consumers cannot mix online services, gadgets and software from different vendors and be sure that the content they have paid for actually works. Music bought online from Microsoft’s MSN or Yahoo!, for instance, does not work on Apple’s iTunes or iPod, and vice versa.

This challenge is daunting because DRM technologies should not only be compatible today, but for all eternity. Otherwise, consumers will be afraid to pay for content, and will stick with CDs and DVDs, which seem painless and safe by comparison. “If consumers even know there’s a DRM, what it is, and how it works, we’ve already failed,” says Peter Lee, an executive at Disney. The same goes for codecs. “The user shouldn’t know or care what format they’re using,” says James Poder, an engineer at Comcast, America’s largest cable company and broadband internet service provider, because “consumers don’t want to be IT administrators for their own home.”

Prisoner’s dilemma

It may seem ironic, therefore, that vendors are refusing to make their technologies interoperable, thus potentially killing their own vision. On the other hand, it makes sense for each to try to make its own proprietary technology the winner, in order later to grab a disproportionate share of the market. The starting point of cable and telecoms companies, for instance, is as providers of broadband pipes into the home. So they are investing in IPTV (internet-protocol television), a vision in which content resides on the network and is pulled into the home on demand. Thus, says Cyrus Mewawalla, an analyst at Westhall Capital, a broker in London, America’s Verizon and SBC and others are investing hugely in laying fibre-optic cables to homes (at a cost of about $1,000 per household), hoping that IPTV and the necessary set-top box could “evolve into the primary gateway to the digital home.” By controlling this gateway, they could offer a bundle of telephony, internet and entertainment, in effect “owning” the customer.

This would at the same time help them to parry their biggest threat: Microsoft. Microsoft has itself invested in IPTV, ostensibly in partnership with telecoms and cable companies. Like its loss-making investment in game consoles (called Xbox), however, Microsoft intends this as a purely defensive hedge, says Matt Rosoff, an analyst at Directions on Microsoft, an independent research outfit near Seattle. Instead, thinks Mr Rosoff, Microsoft’s strategy is to establish the Windows-run PC as the uncontested hub of the digital home. Hence its all-out push to establish its codecs and DRM as the standard. This would allow Microsoft to keep selling Windows upgrades and to earn royalties from hardware and from consumer-electronics companies that make “spokes” for the Windows hub, such as portable music and video players, screens and online services.

Microsoft’s most explicit attempt so far is a version of its current operating system called Windows Media Centre Edition (MCE), which puts a simplified menu on top of the desktop screen for use with a remote control from the sofa. The MCE was first launched in October 2002, and has been upgraded several times since, but it has so far been mostly a dud, running fewer than 1% of all PCs sold last year. Microsoft now hopes to make MCE more relevant by selling “extenders”, little devices that can hook on to a TV set or stereo and communicate with the PC over a wireless network. Its biggest hope, however, is for Vista (previously known by the code name of Longhorn), the next version of Windows, which is due to be released late next year (after several delays).

According to Microsoft’s Mr Mundie, there is no question that the Windows PC will win this fight to become the central repository for all digital content, for a simple reason. The cable and telecoms companies, he says, are hampered by their business model, in which the set-top boxes sit on their own balance sheet and are leased, at subsidised rates, to consumers. This means that their incentive will always be to make the boxes cheaper. By contrast, Microsoft’s incentive is to make its operating system more sophisticated, in everything from parental controls to usability. By the same logic, Microsoft will beat the consumer-electronics companies (such as Sony and Samsung). Their business model relies on selling devices rather than on recurring licence revenues. This leads to clutter in the home, without organisation of the content.”

Conclusion of the article:
“Winner takes all?

For the foreseeable future, the only certainty is that all these mighty companies will continue to preach interoperability while pursuing proprietary hegemony. This could lead to several scenarios. One is that one company, or camp, wins. The digital home, unified by the winner’s standards, might then become a reality in the mass market. For this to happen, however, several companies and industries would first have to make huge strategic mistakes, and consumers would have to accede, in effect, to a repeat of the “Wintel” (Windows and Intel) near monopoly in the PC industry today.

Another possibility is that the technology wars end with a truce, perhaps brokered by industry consortia that push open standards. This would be infinitely preferable for consumers and would probably make the digital home a reality much sooner, since it would mean that consumers could shop incrementally for new gadgets, all of which will fit with the others. The catch for providers is that this is much less exciting for their own bottom lines.

There is a third possibility. This is that the wars continue, but consumers continue not to care. As John Barrett, research director at Parks Associates, says, “it seems that we’ve concocted a new variant of the ‘paperless’ office.” This, you recall, was the consensus a decade or so ago among technophiles (but almost nobody else), that computer technology would save our forests by freeing us from having to read and write on paper. Today’s variant, says Mr Barrett, is “no more tapes, CDs, DVDs, discs.” In other words, expect them to be around for a very long time to come.”

Read the whole article yourself. I’ve quoted extensively from it here to try and show the quote in context.

I would read this quote as the Disney executive simply saying that a technology that gets in the way is a barrier to consumer uptake of a new product. Looking at the quote in context it would seem that the biggest players are the Telecoms and the IT industry.

I think context is everything.

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