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Watermarking to replace DRM?

Technology could eventually take the place of DRM, which is both ineffective and alienating to consumers.

Editors' note: This blog initially misspelled the name of a writer from Wired. The writer is Eliot Van Buskirk.

Watermarking has been in the news twice in the past week. First, Wired's Eliot Van Buskirk revealed that Universal will insert watermarks in the DRM-free files it's distributing through Rhapsody, and other online stores.

Then, Wednesday, Microsoft announced that it's licensing audio watermarking technology developed by its research division to a company called Activated Content. (Microsoft Research used to be devoted entirely to building technology that would later be incorporated into Microsoft products, but a couple of years ago it began to license technology through its IP Ventures program.)

So what's watermarking? It's the insertion of extra data into an audio stream that can help identify where that audio came from. It's not enough to attach data to a digital audio file--users can just burn that file to a CD and then re-rip it, changing the file format and stripping off all the data associated with the original file. (This is also the classic way users get around DRM.) Instead, the data is inserted into the audio track itself. It's inaudible to human ears, but detectible by various other tools.

In the case of Universal, the watermarking data won't identify each individual file--a method that would allow the company to trace pirated files back to their first purchaser. Instead, it will only identify the particular song. Eventually, Universal will look at popular file-trading networks, and see which of the DRM-free songs released through its experimental program ended up on these networks. Universal can then use this data to help decide whether the risk of piracy outweighs the increased sales from DRM-free MP3 files, segmenting this decision by particular markets. For example, it might find that new Top 40 singles are more likely to find their way onto file-trading networks than classic rock from the 1970s.

Activated Content hasn't explained exactly how it'll use the Microsoft technology, but the company's Web site promotes a very interesting service called ActiveNow. The idea: whenever a watermarked file is played on an ActiveNow-enabled device, the service could dynamically insert some sort of advertising--presumably audio, but perhaps video or text depending on the device being used. (This service sounds a little like techno-voodoo to me, and the Web site doesn't really explain how it works. However it does have some interesting white papers on watermarking and why Activated Content believes its watermarks are superior.)

I could see watermarking eventually taking the place of DRM, which is both ineffective and alienating to consumers. Instead of trying to prevent users from copying and sharing audio files, content owners could simply trace the paths of these files, then establish some sort of remuneration system. Activated Content's idea of dynamic advertising is interesting, but it seems more reasonable to me to build some sort of pooled payment system (for instance, a blanket charge on Internet service and audio software), then distribute the money from these pooled payments to copyright owners based on usage.