Watch the Marks

With EMI selling its entire catalog DRM-free and Universal soon to experiment with its open-MP3 format, the major labels are finally showing a willingness to abandon the rusty armor of digital rights management.
Or are they? EMI's files, as sold by Apple, come with the buyer's name and e-mail address in the file's header, where it can be easily read. And the "open" MP3s soon to be sold by Universal through Rhapsody and other outlets contain watermarked that identify each song's title and artist.
Universal confirms that it will be able to track down the MP3s on P2P networks using these watermarks, although the company's MP3 experiment will not make use of that would allow record labels to see which user purchased the files.
However, the strategy of tracking users through digital watermarks -- both those who illicitly trade songs and those who don't -- is still on the labels' radar.
"There are certainly content owners who would like to do that," says Evan Hill, CTO of Activated Content, a company that provides watermarking solutions to Universal, Sony/BMG and other labels.
A number identifying every unique music file sold worldwide could be added using Activated Technology's watermark, which crams 4 bits of watermarked data into each second of a compressed music file. If one were to play a song over speakers and re-record it, those bits would remain intact, according to Hill.
Most of the company's current customers use its watermarks to stop music writers from leaking advance promotional copies onto the internet. That system uses a 32-bit watermark, which, according to Hill, can render 4.2 billion unique IDs -- far greater than the number of music reviewers in the world.
Watermarking files with enough digits to identify each song purchased by every user worldwide would require a 128-bit number. Using the 4-bits-per-second watermark, a song would only have to be 32 seconds long in order to contain a unique identifier.
Unique watermarks would allow labels to hunt down and sue alleged copyright infringers with vastly increased efficiency, even if the file was copied from their computer without their knowledge. Hill calls the possibility a "privacy nightmare."
However, the alternate vision for watermarks is less bleak, and could reinvent the music industry as a DRM-free, privacy-respecting, P2P-friendly market. Rather than assigning a unique ID to users, the watermark could trigger targeted ads. Record labels could profit from what Hill calls the "velocity" of music (the speed at which it moves around the net), rather than waging an endless campaign to stop it.
"We can do watermarking down the consumer level, but we don't want to lock the consumer down," he says. "We're looking to the future -- you want the velocity of (labels') content to be high, with monetization based on the velocity of (that) content."
white paper posted in January, Hill offers a concrete example of how this might work:
Watermarking can potentially tell you 'this content is "Stairway to Heaven," distributed through Starbucks, last transferred through the Hear Music kiosk in downtown San Francisco on Dec. 8th, to a registered Hear Music user who has this profile and uses a Microsoft Zune.'... The elements that are potentially still valid (after removing privacy concerns) are 'Stairway to Heaven,' Starbucks, Hear Music, San Francisco, and even many of the elements of the first friend's profile. This makes for a very valuable advertisement.
The system would be easy to implement on connected devices, which can grab new ads on the go, such as the iPhone, and would work almost as well for devices that are only sporadically connected, such as iPods. Watermarks could be stored on the player until the next sync, when new targeted ads could be loaded.
The major labels have arrived at the crossroads of DRM and watermarks. The watermark path leads in two directions: one toward a "privacy nightmare" and the other toward an open system that acknowledges -- and derives value from -- the velocity of music.
Regular Listening Post readers would hardly expect me to advocate the foisting of targeted ads onto MP3 players. But if the songs don't contain unique IDs, the ads never interfere with my music listening, the system is completely transparent and I can disable it at any time for a low monthly fee, I could be fine with it.
DRM was never the answer. But if the major labels adopt these watermarks and use them in the right way, it could bring Napster-style file sharing -- and music revenues -- back to life.

Posted on Wired.com