| Apple Statement – Steve Jobs -February 6, 2007 |
9to5Mac Revised Apple Statment for use with iPhones |
| With the stunning global success of Apple’s iPod music player and iTunes online music store, some have called for Apple to “open” the digital rights management (DRM) system that Apple uses to protect its music against theft, so that music purchased from iTunes can be played on digital devices purchased from other companies, and protected music purchased from other online music stores can play on iPods. Let’s examine the current situation and how we got here, then look at three possible alternatives for the future. |
With the stunning success of Apple’s iPhone and AT&T wireless data service, some have called for Apple to “open” the SIM Lock system that Apple uses to protect its iPhone from obtaining data purchased from other online wireless data providors so that it can be used on iPhones. Let’s examine the current situation and how we got here, then look at three possible alternatives for the future. |
| To begin, it is useful to remember that all iPods play music that is free of any DRM and encoded in “open” licensable formats such as MP3 and AAC. iPod users can and do acquire their music from many sources, including CDs they own. Music on CDs can be easily imported into the freely-downloadable iTunes jukebox software which runs on both Macs and Windows PCs, and is automatically encoded into the open AAC or MP3 formats without any DRM. This music can be played on iPods or any other music players that play these open formats. |
To begin, it is useful to remember that all iPhones can use wireless data that is free of any SIM Lock and encoded in “open” data formats such as GSM and EDGE. iPhone users can and do acquire their wireless data from many sources, including home Wifis they own. Wired data on home Wifis can be easily used to provide downloadable data which runs on both Macs and Windows PCs, and is automatically encoded to support TCP/IP formats without any SIM Lock. This Wifi data can be used on iPhones or any other wireless data devices that use these open formats. |
| The rub comes from the music Apple sells on its online iTunes Store. Since Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied. The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices. |
The rub comes from the wireless data Apple sells from AT&T. Since Apple does not own or control any wireless data itself, it must license the rights to distribute wireless data from others, primarily the “big four” wireless data companies. These four companies control the distribution of over 90% of America’s wireless data. When Apple approached these companies to license their wireless data to distribute legally over the Airwaves, they were extremely cautious and required Apple to protect their wireless data from being overly used. The solution was to create a SIM Lock system, which envelopes each phone purchased from the AT&T store in special and secret software so that it cannot be used on other services. |
| Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services. However, a key provision of our agreements with the music companies is that if our DRM system is compromised and their music becomes playable on unauthorized devices, we have only a small number of weeks to fix the problem or they can withdraw their entire music catalog from our iTunes store. |
Apple was able to negotiate landmark usage rights at the time, which include allowing users to use their SIM Lock protected iPhones to get unlimited wireless data. Obtaining such rights from the wireless data companies was unprecedented at the time, and even today is unmatched by most other digital wireless data services. However, a key provision of our agreements with the wireless data companies is that if our SIM Lock system is compromised and iPhones can use data on unauthorized wireless providors, we have only a small number of weeks to fix the problem or they can withdraw their entire wireless data agreement from our AT&T deal. |
| To prevent illegal copies, DRM systems must allow only authorized devices to play the protected music. If a copy of a DRM protected song is posted on the Internet, it should not be able to play on a downloader’s computer or portable music device. To achieve this, a DRM system employs secrets. There is no theory of protecting content other than keeping secrets. In other words, even if one uses the most sophisticated cryptographic locks to protect the actual music, one must still “hide” the keys which unlock the music on the user’s computer or portable music player. No one has ever implemented a DRM system that does not depend on such secrets for its operation. |
To prevent illegal access, SIM Lock systems must allow only authorized devices to use the protected wireless data. If a copy of SIM Lock breaking software is posted on the Internet, it should not be able to used on a downloader’s computer or portable wireless data device. To achieve this, a SIM Lock system employs secrets. There is no theory of protecting content other than keeping secrets. In other words, even if one uses the most sophisticated cryptographic locks to protect the actual wireless data, one must still “hide” the keys which unlock the wireless data on the user’s computer or portable wireless data device. No one has ever implemented a SIM Lock system that does not depend on such secrets for its operation. |
| The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get free (and stolen) music. They are often successful in doing just that, so any company trying to protect content using a DRM must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game. Apple’s DRM system is called FairPlay. While we have had a few breaches in FairPlay, we have been able to successfully repair them through updating the iTunes store software, the iTunes jukebox software and software in the iPods themselves. So far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music. |
The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get unlock the wireless data source access. They are often successful in doing just that, so any company trying to protect content using a SIM Lock must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game. Apple’s SIM Lock system is called iPhone Updates. While we have had a few breaches in iPhone Updates, we have been able to successfully repair them through updating the AT&T SIM lock, the iTunes software and software in the iPhones themselves. So far we have met our commitments to the wireless data companies to protect their wireless data, and we have given users the most liberal usage rights available in the industry. |
| With this background, let’s now explore three different alternatives for the future. |
With this background, let’s now explore three different alternatives for the future. |
| The first alternative is to continue on the current course, with each manufacturer competing freely with their own “top to bottom” proprietary systems for selling, playing and protecting music. It is a very competitive market, with major global companies making large investments to develop new music players and online music stores. Apple, Microsoft and Sony all compete with proprietary systems. Music purchased from Microsoft’s Zune store will only play on Zune players; music purchased from Sony’s Connect store will only play on Sony’s players; and music purchased from Apple’s iTunes store will only play on iPods. This is the current state of affairs in the industry, and customers are being well served with a continuing stream of innovative products and a wide variety of choices. |
The first alternative is to continue on the current course, with each manufacturer competing freely with their own “top to bottom” proprietary systems for selling, playing and protecting wireless data. It is a very competitive market, with major global companies making large investments to develop new wireless data devices and online wireless data stores. Apple, Microsoft and Sony all compete with proprietary phone OS’s. Wireless data purchased for Microsoft’s WM6 devices will only used on WM6 devices; wireless data purchased from Sony’s Symbian devices will only be used on Sony’s devices; and wireless data purchased from Apple’s AT&T store will only useon iPhones. This is the current state of affairs in the industry, and customers are being well served with a continuing stream of innovative products and a wide variety of choices. |
| Some have argued that once a consumer purchases a body of music from one of the proprietary music stores, they are forever locked into only using music players from that one company. Or, if they buy a specific player, they are locked into buying music only from that company’s music store. Is this true? Let’s look at the data for iPods and the iTunes store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold. |
Some have argued that once a consumer purchases a wireless data contract from one of the proprietary wireless data stores, they are forever locked into only using wireless data devices from that one company. Or, if they buy a specific device, they are locked into buying wireless data only from that company’s wireless data store. Is this true? Let’s look at the data for iPhones and the AT&T store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2007, customers purchased a total of 1.5 million iPhones. |
| Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. It’s hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music. |
And since 97% of the wireless data on the average iPhone was not purchased from the AT&T wireless, iPhone users are clearly not locked into the AT&T wireless to acquire their wireless data. |
| The second alternative is for Apple to license its FairPlay DRM technology to current and future competitors with the goal of achieving interoperability between different company’s players and music stores. On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its FairPlay DRM. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak. The Internet has made such leaks far more damaging, since a single leak can be spread worldwide in less than a minute. Such leaks can rapidly result in software programs available as free downloads on the Internet which will disable the DRM protection so that formerly protected songs can be played on unauthorized players. |
The second alternative is for Apple to license its SIM Lock technology to current and future competitors with the goal of achieving interoperability between different company’s devices and wireless data stores. On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its SIM Lock. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a SIM Lock involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will get hacked. The Internet has made such hacks far more damaging, since a single hack can be spread worldwide in less than a minute. Such hacks can rapidly result in software programs available as free downloads on the Internet which will disable the SIM Lock protection so that formerly protected phones can get unauthorized data. |
| An equally serious problem is how to quickly repair the damage caused by such a leak. A successful repair will likely involve enhancing the music store software, the music jukebox software, and the software in the players with new secrets, then transferring this updated software into the tens (or hundreds) of millions of Macs, Windows PCs and players already in use. This must all be done quickly and in a very coordinated way. Such an undertaking is very difficult when just one company controls all of the pieces. It is near impossible if multiple companies control separate pieces of the puzzle, and all of them must quickly act in concert to repair the damage from a leak. |
An equally serious problem is how to quickly repair the damage caused by such a hack. A successful repair will likely involve enhancing the wireless data software, the itunes software, and the software in the devices with new secrets, then transferring this updated software into the tens (or hundreds) of millions of Macs, Windows PCs and devices already in use. This must all be done quickly and in a very coordinated way. Such an undertaking is very difficult when just one company controls all of the pieces. It is near impossible if multiple companies control separate pieces of the puzzle, and all of them must quickly act in concert to repair the damage from a hack. |
| Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies. Perhaps this same conclusion contributed to Microsoft’s recent decision to switch their emphasis from an “open” model of licensing their DRM to others to a “closed” model of offering a proprietary music store, proprietary jukebox software and proprietary players. |
Apple has concluded that if it licenses Sim lock others, it can no longer guarantee to protect the wireless data it licenses from the big four wireless data companies. Perhaps this same conclusion contributed to Microsoft’s recent decision to switch their emphasis from an “open” model of licensing their SIM Lock to others to a “closed” model of offering a proprietary wireless data store, proprietary jukebox software and proprietary devices. |
| The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music. |
The third alternative is to abolish SIM Locks entirely. Imagine a world where every online store sells SIM Lock-free wireless data encoded in open licensable formats. In such a world, any device can use wireless data purchased from any carrier, and any carrier can sell wireless data which is usable on all devices. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four wireless data companies would license Apple their wireless data without the requirement that it be protected with a SIM Lock, we would switch to selling only SIM Lock-free wireless data on our iPhones. Every iPhone ever made will use this SIM Lock-free wireless data. |
| Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player. |
Why would the big four wireless data companies agree to let Apple and others distribute their wireless data without using SIM Lock systems to protect it? The simplest answer is because SIM Locks haven’t worked, and may never work, to halt wireless data piracy. Though the big four wireless data companies require that all their wireless data sold online be protected with SIM Locks, ISPs continue to sell billions of home Wifis a year which contain completely unprotected wireless data. That’s right! No SIM Lock system was ever developed for the home Wifi, so all the wireless data distributed on home Wifis can be easily be used on any computer or device. |
| In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system. |
The ISPs sell the vast majority of their wireless data SIM Lock-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling home Wifis which must usein home Wifi devices that support no SIM Lock system. |
| So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies. |
So if the wireless data companies are selling over 90 percent of their wireless data SIM Lock-free, what benefits do they get from selling the remaining small percentage of their wireless data encumbered with a SIM Lock system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a SIM Lock system has limited the number of participants selling SIM Lock protected wireless data. If such requirements were removed, the wireless data industry might experience an influx of new companies willing to invest in innovative new stores and devices. This can only be seen as a positive by the wireless data companies. |
| Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly. |
Much of the concern over SIM Lock systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the wireless data companies to sell their wireless data SIM Lock-free. Convincing companies to license their wireless data to Apple and others SIM Lock-free will create a truly interoperable wireless data marketplace. Apple will embrace this wholeheartedly. |
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Orange UK is offering a free 8GB iPod to business customers in the UK who sign up for their Orange Solo, Orange Venture or Orange Momentum small business mobile plans. Orange is competing with iPhone-carrying O2 in the UK small business space and offers the iPhone at its France Telecom division so it is an interesting decision.
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Apple, for all of its recent success, really hasn’t done what seems so easy for HP, Dell and Lenovo — Make a dent in the enterprise. Yes, some smaller firms are finding a great deal of success rolling out the MacOS and a large number of companies have creative departments with Macs. However, no large company, with perhaps the exception of Apple itself, has gone completely Mac. Huge creative conglomerates like WPP and Omnicom would be lucky to hit 50 percent.
Apple today announced the availability of Apple Xserves that utilize the Quad-Core Intel Xeon “Harpertown” processors. Eight cores, 1600Mhz bus, 32GB of 800MHz DDR2 ECC FB-DIMM memory supported. 
We were right. Sort of. We 
