Nokia Thinks a DRM Based Online Music Business Model Will Work Drew Wilson | October 7, 2008 In light of major music stores selling DRM encoded music collapsing, Nokia apparently thinks that they can somehow reverse the trend and make a successful business model out of it. Note: This is an article I wrote that was published elsewhere first. It has been republished here for archival purposes Clearly a large responsible company that knows technology would know how to bring this kind of model to success where tiny little not-too-bright upstart companies like Yahoo! and Microsoft failed. Let’s pause for a moment and think about this. If you are a smart entrepreneur looking for some way to bring into existence a strong successful company, what would be one of two things you would try? One might be to think of a business model that doesn’t exist yet that would potentially have a large demand. The other might be to start a company that follows similarly along the lines of an already existing business model, yet somehow provide healthy competition to compete in an expanding market place. Now, let’s apply this logic to what we have been witnessing for a while in the DRM-based music business model. An entrepreneur, or in this case, an already existing company, looks at the market place. If the research is done properly, one of many things to note is the fact that Wal*Mart initially started with a DRM-based music store business model. After huge demand, among other things, Wal*Mart eventually dropped DRM in favor of selling DRM-free music. Of course, Wal*Mart wasn’t the first to try to popularize DRM-based music business models. Perhaps one of the biggest names in this kind of market is Napster 2.0. Napster 2.0 pretty much was the flagship of selling music encoded with DRM over the internet. At first, the model did well, defying some observers expectations. Observers watching things would likely note at the time that the model would never last for long – they were right. Napster 2.0, after month after month of losses in revenue eventually managed to sell what was left to Best Buy. Adding a third major company is the Microsoft backed MSN Music and URGE. Rumour has it that, in an effort to cut costs to the company, the service shut music fans out of their own music because, again, it was encoded with DRM. Many experts including the Electronic Frontier Foundation predicted that selling music with DRM would never work and would lead to consumer mistrust and eventual collapse of the stores that support such schemes. For the most part, they were quite accurate with iTunes being the only exception. One might suggest that a DRM business model would only work if there is a monopoly – and that monopoly is iTunes. So exactly how Nokia concluded that it would be a great model to start up this day and age probably goes along some mysterious line of thinking that DRM is the way to sell music in an effort to combat piracy. From the report: “The research that we did showed people just fundamentally liked the idea of owning something,” he says. “That’s why you haven’t seen all of these streaming models over the last three to five years really take off.” Nokia agreed to add DRM to the tracks to “make everyone want to play” and convinced the companies that such a service would help stamp out music piracy. Why trawl Limewire for potentially poor copies of your favourite songs, the argument goes, when you can download as many as you want to your phone? “This is about attracting people who are not necessarily paying for music today,” Connell explains. “In the UK at Christmas we want parents to walk into Carphone Warehouse and buy this for their kids who maybe are upstairs not necessarily legitimately downloading music. At that point these guys (the record companies) start to really win.” Connell will not reveal the cost of the service added to the new phones, though the Nokia 5310 Xpress Music phone with the Comes With Music service will sell for £129.95 or $A315 in the UK at launch: about £50 or $A122 on top of its lowest available price. Unsurprisingly, there doesn’t seem to be any evidence to suggest that DRM is helping to “stamp out music piracy” along with this claim. What DRM has been doing successfully is stamping itself out from collapsing DRM music stores to public outcry over the technology. Perhaps what is more disturbing is the idea of not allowing any backing up in any form. The feature that allowed Wal*Mart users to burn copy protected music may have saved some grief from angry customers as they came to grips with the fact that their music was no longer being supported by the major box retailer. The Nokia proposition doesn’t even have that. If the company’s music store goes under like many have before, so too will the music that was “purchased” by customers. And so p2p lives on with the unauthorized downloaders being rewarded with unprotected music while honest customers get punished by losing the music they sank large amounts of money in to. The real question might be, where has Nokia been in the last 7 years? Drew Wilson on Twitter: @icecube85 and Google+.