During the conference a wide range of success factors for the digital economy was discussed: availability of broadband access was stressed as a crucial prerequisite for most business models, the importance of amateurization – enabled by cheap ways to produce and alter digital content and make it available through the Internet – was introduced by William Fisher (Director, Berkman Center of Intellectual Property Law) in his dinner speech and was picked up by several speakers later on. Convergence of media and services was another trend identified, threatening established players and giving opportunities to new market entrants that profit from low barriers to entry – think e.g. of Voice over IP. Public sector information was another important topic opening new business perspective. The BBC for example is starting to make older documentaries and movies available to the public via the Internet.

There is apparently no easy answer to the role of governments and their agencies confronted with these rapid developments. One fundamental policy issue however coming up again and again across panels and plenary sessions was the need for a fair balance in intellectual property rights including DRM. For instance Toyoda Masakazu (Director-General, Japanese Ministry of Economy, Trade and Industry) called for an unbundling of the operating and DRM systems to prevent the emergence of monopolies (Apple and Microsoft are trying to strengthen their market position using their respective DRM systems). Rita Hayes (Deputy Director General, Copyright and Related Rights and Industrial Relations, WIPO) suggested a common approach to DRM standards, especially regarding device- and content-interoperability. Michael Geist (Professor, Canada Research Chair in Internet and E-commerce Law, University of Ottawa), suggested that content companies from the movie and music industries should reduce their reliance on DRM – a practice that "locks down" content (cf. Geist 2006).

In the following this report will concentrate on the panel dedicated to DRM and related issues. The mere fact that a special session on these issues took place is another indicator of the importance of IPR and DRM for the future of the digital economy.

Panel discussion on DRM
The following persons were asked to join the panel (in order of appearance): Marco Ricolfi (Professor, University of Turin, Law School) as the panel’s chair, Stan Liebowitz (Professor, Center for Analysis of Property Rights and Innovation, University of Texas), Leonardo Chiariglione (CEO and Digital Media Strategist,, Fred von Lohmann (Senior Intellectual Property Attorney, Electronic Frontier Foundation), Giorgio Assuma (President, Italian Collecting Society SIAE), Barney Wragg (Senior Vice President eLabs, Universal Music Group International) and Sarah Deutsch (Vice President and Associate General Counsel, Verizon Communications).

Marco Ricolfi introduced the topic by pointing out the long and the short route of content distribution. Traditionally, there has been a large number of intermediaries between producers and consumers. While intellectual property rights as well as technological infrastructure is tailored to the long route, with digital distribution there might also be shorter decentralized routes between producer and consumer. As chairman of this session Ricolfi put in further interesting arguments in the course of this afternoon. He picked up e.g. the phenomenon of amateurization and called for the new IPR rules to be compatible with this type of content. Touching on the debate on the copyright term, he considers it to be too extensive, often hindering innovation (e.g. in case of software development). A further question worth considering was in his view, whether DRM-based solutions will alter the role of collecting societies that traditionally represent artists’ rights.

Stan Liebowitz’s introductory presentation focused on "Promises and Threats of the Digital Economy". Digital distribution is a very efficient way of distribution, which continues to have a significant impact on the music industry. However, consumers are adapting only hesitatingly to commercial channels: While in 2003 2% of the record industry’s revenue was derived from online sales, this figure was still only 5% in 2005. Liebowitz specifically blamed rampant P2P use for the slow uptake of commercial offerings and called for further support from the side of governments.

Leonardo Chiariglione lamented about the "miserable state of debate" concerning digital media and rights management. He made an important distinction between "enforcement" and "management" of digital rights. While DRM by nomenclature should be rights management, it is in most cases the enforcement of rights. As such, it reduces economies of scale, and is often difficult to manage due to its proprietary nature. Although a "DRM conversion box" for incompatible DRM systems might offer some relief, no such technology has been embraced in a significant way. Also, proprietary DRM systems’ lack of interoperability lowers the profitability of the whole digital value chain. In his view, only an open DRM standard as put forward by the Digital Media Project (DMP) offers a viable alternative. Part of "Plan B", what Chiariglione called a "liberating message", is the idea that each stakeholder in the market can decide individually on the level of protection.

Fred von Lohmann warned that using the terms "consumers" and "customers" or even "stakeholders" is framing the discussion about usage rights and protective measures in a way that is not desirable. The discussion should rather be about what "fans" or "the public" want. It is accepted for various other online services that success comes with the ability to deliver a "cool user experience". However, this appears to be a minority opinion when it comes to digital content distribution. In particular, incompatible DRM systems limit content usability and accessibility.

But there is also great opportunity in digital content distribution, such as sharing content and experiencing community. This was possible only to a very limited degree with physical media such as CDs, which von Lohmann referred to as "frozen cultural artifacts".

Being a copyright lawyer by training, he stressed that innovative technologies like cable TV or VCR could only be developed and introduced to the market due to gaps in intellectual copyright law, not thanks to tight legislation. He proposed that intellectual property law should be interpreted generously during the early developmental stages of the digital economy. New legal regulations should be formulated ex-post, reflecting the actual evolution and the proven need of regulation. That's what he proposed as his "Plan B".

To get an idea of what consumers expect to do with content, decision and policy makers are well advised to go to places where people "don’t know any better" and "innovate anyway", such as the blogosphere and other amateur sites. This could give guidelines as to how laws should be drafted or technology and business models be developed.

Giorgio Assuma maintained that also in the age of digital distribution, artists need to rely on collecting societies. Without them, it would be impossible to efficiently manage and protect digital rights. He pointed out that this could be done in a more transparent way, due to technological developments.

As a representative of a major record label, Barney Wragg expressed some annoyance about constant accusations from certain stakeholders in the digital economy. Rather than hindering market developments, record labels are actively promoting them with new business models – for example made-for-mobile content, portable subscriptions, licensed P2P networks as well as on-demand services based on advertising revenue. Virtually every major label has built up its own digital label, releasing songs via the Internet rather than on CDs.

According to Wragg, his label has two main objectives: One was to offer many profitable services, the other was the protection of artists’ intellectual rights. Limiting factors for the success of digital distribution are lack of DRM interoperability as well as inflated financial expectations from participants along the value chain, especially on the side of mobile operators.

Sarah Deutsch praised the importance of the Digital Millennium Copyright Act (DMCA) and the WIPO (World Intellectual Property Organization) treaties for digital content production and distribution.

With communication providers trying to move up the value chain, content is of utmost importance for Verizon. The company’s on-demand video offering, FiOS, delivers content encrypted end-to-end, in order to curb infringement.

When infringement is detected within Verizon’s network, the company sends a warning note to the offending user. Content providers (e.g. Disney) are not notified about this act, as a measure to safeguard customers’ privacy. Only in case of continued violation of copyright law the user faces contract termination.

However, it is only a matter of time until consumers "wake up" to the limits of DRM. This means that all companies on the digital economy’s supply side have a considerable responsibility to balance user interests and the protection of intellectual property.

For example, customers might experience frustrations caused by DRM when they migrate to a new mobile phone. Verizon made the effort to educate its customers that no songs would be lost if they backup their licenses. Deutsch called for standardization of DRM systems and expressed the hope that non-interoperable DRM systems might one day be referred to "that recent unpleasantness".

Bottom line
The Conference helped to address frictions, discuss possible solutions and also prepare for future developments of a dynamic digital economy. Attitudes towards DRM as an efficient means to protect digital content vary significantly. While major content providers tend to stress the importance of deploying such technical protection measures, smaller stakeholders and activist groups point out risks and obvious challenges. It would have been interesting to also hear a representative from one of the major consumer electronics manufacturers or technology providers, such as Apple, Sony and Microsoft, who are often blamed for not engaging in the deployment of interoperable DRM standards.


About the author: After having graduated from University of Mannheim (Business Administration), Philipp Bohn joined Berlecon Research as Junior Analyst in 2005. He is a member of the INIDICARE-team. Contact:

Status: first posted 20/02/06; licensed under Creative Commons