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Fox, Apple and FairPlay

Fox_home_entertainment_logo Studio executives keep saying they've learned from the mistakes made by the music industry, and yet many of their actions seem straight out of the major labels' playbook. Today, the Financial Times reported that 20th Century Fox's home video unit, Fox Home Entertainment, had agreed to offer new titles for rent through Apple's iTunes store and sell DVDs with an extra copy of the movie locked in Apple's proprietary FairPlay DRM. If the latter proves to be true (no mention of it in the NYT piece), it means the movie industry may be on its way to the same DRM incompatibility problem that has vexed the music industry.

The story appeared the same day a chastened Warner Music Group announced plans to sell music in the (gasp!) MP3 format, reversing the company's longstanding insistance  on DRM for its permanent downloads. Its reasoning was simple: multiple DRMs in the music industry were confusing customers, inhibiting new services and stunting growth.

The movie industry has pretty much stuck to uniform electronic locks on each new packaged format: Macrovision on VHS, CSS on DVD, AACS on HD DVD and AACS and BD+ on Blu-ray. Downloads have attracted a greater variety of DRMs, but the major studios have rallied around Windows Media DRM as the lock of choice for rentals. The only significant variation is in permanent downloads, where Disney (for all releases), MGM and Paramount (for just library titles) have embraced Apple's FairPlay in addition to Windows Media DRM and, for burnable downloads, CSS.

Fox's reported deal with Apple would increase the uncertainty over DRM, but it's consumer-friendly in some respects. Adding a new, Apple-powered rental option is a good thing for anyone with an iPod that supports video or and Apple TV set-top box. Given the popularity of the iPod, that category has millions of people in it. Similarly, offering DVDs with copies that can be moved onto a laptop, a video iPod or an Apple TV makes those movies more valuable to buyers because they can be watched in more ways.

It's also easy to see why Fox would want to make a deal like this. Hollywood is better off providing a legitimate product for video iPods than letting people fill them with downloads of, ahem, uncertain provenance. But the studios have been working for several years with tech and consumer electronics companies on standard approach to portable video players (dubbed "managed copy"), one that wouldn't lock consumers into a particular brand of software or device. The standard has been slow in coming, not because of technological challenges so much as business-model issues and the studios' demand for a non-trivial quid-pro-quo from consumer electronics manufacturers: the addition of watermark detectors to DVD players that might blunt the playability of bootlegged movie discs.

Managed copy would be a great thing for consumers, particularly ones who have large collections of videos that they watch repeatedly (read: parents of young children). The Fox-Apple deal could be interpreted as a blow to the managed-copy efforts because it's a step away from an industry standard. It could also be seen as the first step toward Apple's FairPlay becoming the de facto standard for managed copy. If that happens, though, I wonder how long it would be before the studios started to complain about Apple's dominant market position and its unwillingness to do things the studios' way -- in other words, for the studios to reached the same point that the major record labels did. Today's announcement from Warner Music Group shows where that path leads, namely, to abandoning DRM for permanent downloads.

As much as consumers might like to see that happen, the studios don't seem to be anywhere near that point. For starters, many executives think that even an ineffective DRM (such as CSS) is better than nothing because it tells consumers that they're not supposed to copy the movie. That ethical speed bump may deter some people from copying the films they rent or borrow from the library, although it's obviously not enough to stop anyone who really wants to do such things. Of course, the inescapable FBI and Interpol warnings inserted into every movie play pretty much the same role. Second, and probably more important, DRM provides a measure of control over the business model. For example, if a studio wants to provide one free copy of the movie but charge $5 or $10 for each additional copy, it needs DRM. If the industry is wedded to DRM, though, it would be better off with a standard one -- not just for its own interests and for consumers, but also for entrepreneurs who want to offer Internet-based movie services. That's the group with the most to lose if FairPlay, which Apple has so far refused to license to any rivals, becomes the industry's de facto DRM standard.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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