Monday, June 13. 2005
DRM Laundering
My DRM-knees are starting to ache, so I can feel an exploitation-storm on the horizon. Perhaps one day, file-sharing and DRM-stripping piracy won't be the only thing to worry about; you'll be able to rip off the DRM-companies directly through a process I've called DRM laundering. What is DRM laundering, you might ask? Well, it is very similar to money laundering in the real world only with DRM-laden music files.
Background
Microsoft launched its MSN music download service back in September of 2004, and it is a direct competitor to market leader Apple iTMS. The songs are sold in Windows Media Audio (WMA) format for 99 cents each and are encrypted with Janus DRM. We have not seen sales numbers yet for the MSN service, but it is clear that Apple is winning the pay-per-download battle right now.
Earlier this month Microsoft had a meeting in New York to tell the press about upcoming changes to the MSN Music service. There were two interesting tidbits that emerged from this meeting. First, MSN announced that it will soon offer a subscription service! Wow, big deal. The only major company not offering a subscription based service is Apple. Yahoo entered into this realm in May, and as of now they have the lowest price service around. Microsoft did not provide any specifics about the service except to say that they were focusing more on the community aspect of the service and that they think the subscription model is “very interesting”.
The second tidbit that emerged from all of this hub-bub was Microsoft may be planning a direct attack on Apple. This information was reported by CNet and is said to come from “sources” so take it with a grain of salt.
How is this attack supposed to be executed? Microsoft is going to provide a free MSN WMA-encoded song for every song purchased through iTMS. We obviously do not know how this will work exactly, but we can make two assumptions: It will be a one time offer for people to switch from Apple to MSN and it will cost Microsoft quite a bit of money. The idea is that people who have purchased hundreds of songs from Apple will not switch from an iPod to another player now because of the cost involved in switching. If this cost is removed then people can more freely switch.
The current download industry is built on this idea of lock-in. Lock-in occurs when consumers invest a great deal of money into collections, and companies build limitations into their products or software that will render that investment worthless if the consumer switches to a different company. This is similar to the video game console market in which games are compatible with only one console. Once a person owns a console and games it is very difficult get that customer to switch to another console. To encourage this psuedo-loyalty, each console maker spends millions on exclusive, high-end, must-have titles. Many people have an X-Box just so they can play Halo, and I know several people who are buying a Game Cube just so they can play the upcoming Zelda game.
In the download industry, the exclusive titles are just not compelling enough to force one customer to buy two different MP3 devices and maintain two different accounts. Microsoft understands this and is willing to lose money on getting people to switch for the same reason they are willing to lose money on every X-Box they sell. In the long run the number of titles sold for the X-Box and all of the peripheral X-Box sales will make money for Microsoft. Microsoft makes its money in the download industry by licensing its DRM to both content providers and to hardware makers. This means that Microsoft gets a cut from every Microsoft-compatible MP3 player that is sold and from every song that is downloaded. So, again in the long run Microsoft knows that it can make money even if they have to lose millions up front to buy the customers. Microsoft is just the company that is able to buy a customer base by offering such a devil's pact.
Laundering
Now with the boring things out of the way, I began to wonder how people would take advantage of such an offer by Microsoft and the idea of laundering illegal files came to mind.
Money laundering happens in the real world all the time. To launder money a person needs two businesses: one legal and one not-so-legal. As an example, let's call the legal business Jimmy’s House `O Beef (HOB), and let's call the illegal business Jimmy’s House `O Sin (HOS). Now HOB sells $2000 worth of steak dinners a day and has expenses of $1800 which leaves HOB with a profit of $200. On the other hand, HOS sells $5000 worth of sin daily and has expenses of $4000 (sin workers are expensive) leaving HOS with profit of $1000.
The problem is that I cannot put the $1000 in the bank lest the FBI come asking where the money came from. So, I take the $1000 to HOB and stick it in the cash register. Now when I do my books for HOB it looks like I sold $3000 worth of steak dinners per day and kept my expenses at $1800 thereby increasing my profit at HOB from $200 to $1200 daily. I deposit the $1200 into HOB’s bank account and pay taxes on it just like any other money. The IRS is happy, and the bank assumes HOB is doing well and does not report me to the FBI.
The new Microsoft offer to iTMS customers creates and interesting opportunity for pirates who obtained their music illegally. But to do it, you have to go a little against your pirate-patch training. To launder digital, files a person would need four things: a legal iTMS account, a not-so-legal source for music, some DRM cracking software, and one of the new MSN accounts where Microsoft is going to give you WMA files for iTunes files. The first thing you would do is download as many not-so-legal music files as you wanted. Then you would use some yet-to-be-coded DRM cracking software to add FairPlay DRM to all of this music and import it into iTunes. Weird, huh? It feels like you're walking backwards. Your iTunes software now has thousands of shiny new DRM-laden songs. Now, you need to go get an MSN Music account and tell them that you want to switch from Apple to Microsoft. Microsoft will now give you legal WMA files for all of those iTunes songs. Congratulations, you now have a completely legal music collection in 160kbps WMA and is likely a better quality version than the average ripped and pirated song.
Is this practical? No, not really. It makes more sense to keep your no-so-legal music in the original MP3 format. However, if you have a bunch of songs that are truncated or that are of poor quality, the MSN laundering service might be for you. Of course, this entire exercise is based on the idea that Microsoft is actually going to offer this service. As of now, this is purely speculation. Moreover, we can't be sure even how the system will work. It's also illegal; I'm fairly certain MSN laundering would count as defrauding Microsoft. Of course, we don't recommend or condone these actions, but we can smell the exploitation in the air. Leave it to Microsoft to create even more opportunities for pirates just so that Microsoft can buy its way into industry-leadership.
This entire exercise was done to prove a point. Downloading music files isn't about the music; it's about the DRM.
Author: Jimmy Palmer
Background
Microsoft launched its MSN music download service back in September of 2004, and it is a direct competitor to market leader Apple iTMS. The songs are sold in Windows Media Audio (WMA) format for 99 cents each and are encrypted with Janus DRM. We have not seen sales numbers yet for the MSN service, but it is clear that Apple is winning the pay-per-download battle right now.
Earlier this month Microsoft had a meeting in New York to tell the press about upcoming changes to the MSN Music service. There were two interesting tidbits that emerged from this meeting. First, MSN announced that it will soon offer a subscription service! Wow, big deal. The only major company not offering a subscription based service is Apple. Yahoo entered into this realm in May, and as of now they have the lowest price service around. Microsoft did not provide any specifics about the service except to say that they were focusing more on the community aspect of the service and that they think the subscription model is “very interesting”.
The second tidbit that emerged from all of this hub-bub was Microsoft may be planning a direct attack on Apple. This information was reported by CNet and is said to come from “sources” so take it with a grain of salt.
How is this attack supposed to be executed? Microsoft is going to provide a free MSN WMA-encoded song for every song purchased through iTMS. We obviously do not know how this will work exactly, but we can make two assumptions: It will be a one time offer for people to switch from Apple to MSN and it will cost Microsoft quite a bit of money. The idea is that people who have purchased hundreds of songs from Apple will not switch from an iPod to another player now because of the cost involved in switching. If this cost is removed then people can more freely switch.
The current download industry is built on this idea of lock-in. Lock-in occurs when consumers invest a great deal of money into collections, and companies build limitations into their products or software that will render that investment worthless if the consumer switches to a different company. This is similar to the video game console market in which games are compatible with only one console. Once a person owns a console and games it is very difficult get that customer to switch to another console. To encourage this psuedo-loyalty, each console maker spends millions on exclusive, high-end, must-have titles. Many people have an X-Box just so they can play Halo, and I know several people who are buying a Game Cube just so they can play the upcoming Zelda game.
In the download industry, the exclusive titles are just not compelling enough to force one customer to buy two different MP3 devices and maintain two different accounts. Microsoft understands this and is willing to lose money on getting people to switch for the same reason they are willing to lose money on every X-Box they sell. In the long run the number of titles sold for the X-Box and all of the peripheral X-Box sales will make money for Microsoft. Microsoft makes its money in the download industry by licensing its DRM to both content providers and to hardware makers. This means that Microsoft gets a cut from every Microsoft-compatible MP3 player that is sold and from every song that is downloaded. So, again in the long run Microsoft knows that it can make money even if they have to lose millions up front to buy the customers. Microsoft is just the company that is able to buy a customer base by offering such a devil's pact.
Laundering
Now with the boring things out of the way, I began to wonder how people would take advantage of such an offer by Microsoft and the idea of laundering illegal files came to mind.
Money laundering happens in the real world all the time. To launder money a person needs two businesses: one legal and one not-so-legal. As an example, let's call the legal business Jimmy’s House `O Beef (HOB), and let's call the illegal business Jimmy’s House `O Sin (HOS). Now HOB sells $2000 worth of steak dinners a day and has expenses of $1800 which leaves HOB with a profit of $200. On the other hand, HOS sells $5000 worth of sin daily and has expenses of $4000 (sin workers are expensive) leaving HOS with profit of $1000.
The problem is that I cannot put the $1000 in the bank lest the FBI come asking where the money came from. So, I take the $1000 to HOB and stick it in the cash register. Now when I do my books for HOB it looks like I sold $3000 worth of steak dinners per day and kept my expenses at $1800 thereby increasing my profit at HOB from $200 to $1200 daily. I deposit the $1200 into HOB’s bank account and pay taxes on it just like any other money. The IRS is happy, and the bank assumes HOB is doing well and does not report me to the FBI.
The new Microsoft offer to iTMS customers creates and interesting opportunity for pirates who obtained their music illegally. But to do it, you have to go a little against your pirate-patch training. To launder digital, files a person would need four things: a legal iTMS account, a not-so-legal source for music, some DRM cracking software, and one of the new MSN accounts where Microsoft is going to give you WMA files for iTunes files. The first thing you would do is download as many not-so-legal music files as you wanted. Then you would use some yet-to-be-coded DRM cracking software to add FairPlay DRM to all of this music and import it into iTunes. Weird, huh? It feels like you're walking backwards. Your iTunes software now has thousands of shiny new DRM-laden songs. Now, you need to go get an MSN Music account and tell them that you want to switch from Apple to Microsoft. Microsoft will now give you legal WMA files for all of those iTunes songs. Congratulations, you now have a completely legal music collection in 160kbps WMA and is likely a better quality version than the average ripped and pirated song.
Is this practical? No, not really. It makes more sense to keep your no-so-legal music in the original MP3 format. However, if you have a bunch of songs that are truncated or that are of poor quality, the MSN laundering service might be for you. Of course, this entire exercise is based on the idea that Microsoft is actually going to offer this service. As of now, this is purely speculation. Moreover, we can't be sure even how the system will work. It's also illegal; I'm fairly certain MSN laundering would count as defrauding Microsoft. Of course, we don't recommend or condone these actions, but we can smell the exploitation in the air. Leave it to Microsoft to create even more opportunities for pirates just so that Microsoft can buy its way into industry-leadership.
This entire exercise was done to prove a point. Downloading music files isn't about the music; it's about the DRM.
Author: Jimmy Palmer
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