Macenstein

Posted by Dr. Macenstein

A new Business 2.0 article profiles a media startup company called Navio which aims to give Apple and Microsoft a run for their money in the fierce battle for Digital Rights Management supremacy. So far, Navio’s approach seems to offer consumers the most appealing alternative yet to either company’s DRM scheme. The hard part, of course, will be convincing the media companies that this is also the best deal for them.

Here’s how it works. Instead of buying the right to USE a song, like in Microsoft‘s and Apple’s schemes, you would instead buy the “perpetual rights� to a song. This means you can re-download the song whenever you wish, as many times as you wish. You now OWN the rights to the song. By buying the rights in perpetuity, you can now download a version of a song for your iPod, one for your computer, one for your cell phone, whatever. Consumers would no longer have to worry that the song they purchased is tied to a specific company’s DRM scheme or media player (ie. iPod) that may or may not be around forever. In addition, the technology is “future-proof�. If a higher quality version of the song is made available down the road, you just re-download it. Your rights to the song would be stored online, so there is nothing for you to keep track of. While at first this might seem like it benefits consumers more than the labels, media companies might very well like this idea better than the current options for two reasons.

The first reason is the potential for higher sales. Under Navio’s model, media companies could bundle more content together. For instance, Navio gives a scenario where a consumer buys a movie ticket online, and is then offered the option of buying the soundtrack, as well as ring tones, screensavers, etc. based on that movie, all for maybe an extra $8.00. Package pricing has the potential to generate huge revenues.

But the real incentive for the media companies lies in Navio’s distribution model. Currently, Apple is the dominating force in the online music industry and pretty much tells the record companies how (and for how much) they can sell their music. With its new video download service growing weekly, Apple is beginning to make the movie industry nervous as well. Under Navio’s approach, however, music/videos could be purchased from a number of different media outlets. If you wanted a song, you could buy it from the record company’s site, or the artist’s site, or one of a thousand “affiliate� sites Navio claims would spring up. The affiliate sites would likely earn a 10-15% take of any profits they generate. This open distribution method would give no one company the advantage over the entire music industry. Each label/artist would set the price their material would sell at, but then that price would be the same everywhere. This would in effect break Apple’s near-monopoly on online music sales.

Or would it? The reason iTunes sells so many songs is not necessarily because Apple is forcing the record companies to sell songs at 99 cents a track. Most other online music companies sell songs for 99 cents. It is because just about everyone who is into digital music seems to prefer Apple’s iPod over the clunkier alternatives offered by other MP3 player manufacturers. If songs downloaded via Navio’s model wouldn’t play on an iPod, then is Apple really in any danger of losing its number one seat?

Well, maybe.

Navio already has deals with Fox and Sony BMG, and both companies are testing out the technology as we speak. This December Navio is launching a new version of its software which allows purchased songs to play on the iPod. This has been done before, with mixed results. Real Network’s “Harmony� technology allowed songs purchased via its Rhapsody music service to be played on the iPod. Apple responded by changing the firmware in its iPods to disable Real’s hack. Real responded by cracking Apple’s DRM again.

Real Networks was never a “real� threat to Apple, so thus far apple has not pursued them to vigorously though the court system. However, if Navio’s tactics catch the favor of the recording and movie industries, it is likely Apple would take legal action to protect its leadership position in the digital content arena.

Still, if the media companies can all agree (which is no small feat) on a distribution method like Navio, then they could easily force Apple into playing nice, and opening the iPod up for everyone. If they simply refuse to renew licensing contracts with Apple, what good is the iTunes music store, or an iPod, for that matter?