Wharton School of Business: Apple makes digital rights management (DRM) work with iPod+iTunes

“Big media players are accustomed to watching the ratings for the most popular music, video and book content. But perhaps they should pay more attention to how consumers feel about three letters at the bottom of most charts–DRM, which stands for digital rights management,” Knowledge@Wharton writes. “Media players are risking a consumer backlash by deploying overzealous systems with such limitations, say experts at Wharton, especially in the wake of Sony BMG’s decision last year to sell CDs with copy-protection software using ‘rootkits’ –computer software frequently used by hackers to cloak the presence of viruses and spyware.”

“While Sony’s miscues have sparked outrage, Wharton experts note that managing digital rights can be done correctly by balancing consumer interests with those of the entertainment industry. The best example of such an approach is Apple Computer and its iTunes store,” Knowledge@Wharton writes. “Apple’s software places restrictions on what a consumer can do with music, but the parameters are broad enough to keep most consumers happy. ‘iTunes is the first (DRM strategy) to think seriously about balancing the needs of content owners with those of consumers,’ says Whitehouse. ‘Apple has attempted to satisfy both sides of the equation.’ What makes iTunes work is its ‘mild-mannered’ approach to DRM, adds Huesman. ‘Apple is above the board and provides a high-quality experience.'”

“Nevertheless, iTunes isn’t ideal for all consumers because they can’t move music to more than five devices at the same time under Apple’s limitations. ‘It’s not a perfect solution, and consumers wish they could do more,’ says Fader. ‘But there hasn’t been a backlash to iTunes.’ Adds Cuban: ‘Apple’s DRM doesn’t restrict what 99 percent of users do, so to them it’s not real DRM. Most users don’t have multiple devices to exchange music between.’ Hunter, however, wouldn’t be surprised if DRM issues within iTunes begin to surface, especially as more Apple fans wind up owning a handful of iPods and try to transfer music bought at iTunes to all other devices. Although there are ways to disable Apple’s protections, it may be too technical for many consumers. As a result of those limitations, Hunter would rather buy a CD than download music from iTunes. Indeed, Apple is putting the restrictions on to satisfy its music label partners, but ‘in the long run, it’s something that may hurt’ the company, says Hunter,” Knowledge@Wharton writes.

Full article here.
Clarification: According to Apple, the iTunes application allows users to burn songs onto an unlimited number of CDs for your personal use, sync music to an unlimited number of iPods and play songs purchased from the iTunes Music Store on up to five Macs or Windows PCs (source). Apple’s iTunes Music Store Terms of Service states, in part, “You shall be authorized to use the Products (defined as: “sound recordings, videos and related artwork”) on five Apple-authorized devices at any time. You shall be able to store Products from up to five different Accounts on certain devices, such as an iPod, at a time (source).”

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