If I had SONY's ear (or any other content provider's), I would recommend...

If I had SONY's ear (or any other content provider’s), I would make the following recommendations:

1) Get out of the DRM business! It looks good on paper, but it will ALWAYS cost you more in PR and good faith / good will lost than it will protect in lost sales. It costs you more per platter to use at a time when you really need to streamline the manufacturing costs (and one of the reasons you are in this rootkit mess, SONY, is because you tried to keep the per-unit cost low, and so got really crappy code). It also only punishes the honest customer. It irritates them when they can't play their platters in some standard equipment, use them for personal compilations or risk using them on their computers. It makes network managers nervous of you wrecking their security, thus banning what should be safe media from their networks, which WILL cost you sales to people who like to listen at work, and may not buy the CD if they can't do that. It forces people who really want/need to use the platters on a computer into considering using alternate, shadier means of obtaining the content and thus introduces more people into the world of black and grey market music. Even if they start out buying legit copies before downloading from the black network, they will eventually download without purchasing, thinking they will get around to that later, and later never comes.... It also costs you additional sales of seemingly unrelated items, as people realize that your war on pirates has become a war on everyone and concern over being spied on by their own computer's hardware and software, no matter how un-based, makes them choose other brands. Meanwhile, it does nothing to stop hard core pirates, who laugh at the ineffectiveness of your measures, and may even motivate wanna-be hackers and pirates into mass distributing to their friends and family the proof of their ability to break your schemes. You may as well bet it all on a pair of deuces with nothing wild!

2- I would suggest applying a similar multi-tiered availability and pricing structure to CD’s as exists for DVD's today, and improving the way DVD’s fare in the market. "What the market will bear" (WTMWB) shows that many people will pay $20 for a CD and $30 for a DVD. However, many more won't; hence the pirate market and lagging CD sales. Please understand, SONY, I am NOT against you and others making a profit on your intellectual property, or getting what the market will bear for it. I just see the drop in CD sales as an indication of more and more people deciding that they can't afford the current pricing. You see this as a battle with piracy, but it is really an indication of WTMWB. Let’s follow a typical life plan for a movie:

a) They typically start in the theatre (unless it is a straight to DVD release). They may bomb, in which case they won’t stay here long. They may hit a grand slam homerun, in which case we may still be paying full price for a seat a year later.

Already piracy can be an issue, as some people will video tape these showings, and there are cases of internal sabotage like what happened with the last Star Wars movie. These cases can be prosecuted (and are), and generally don't provide very good quality copies. They really aren't a threat to you. I honestly don't believe the Star Wars download stopped anyone from going to the theatre to see the movie!

New release music is in this same category, and sometimes a song or album will bomb (not even making the top 200) and sometimes they soar (hitting the top 40 or top 10 and staying there for a year). Even when a release is only available on the radio (prior to the CD’s hitting the shelves), there will be people recording it. Once again, they pose no real threat to you. Most people who get illegal downloads, CD-R’s or MP3 rips of these will eventually either buy a legitimate copy, or never would have anyway.

During this phase, movies cost from $8 to $15 per ticket (depending on where you live), and it would not be inappropriate for the CD to cost $15 to $20. Not everyone will pay that, but some will, and you (SONY) will do well to sell it at that price to those that will pay it. To help hold the price, DON’T license any of the tracks for download from Apple, Napster or ANYONE yet. Anyone downloading pirate copies weren’t going to pay full rate for it anyway, and YOU HAVE LOST NO MONEY ON THEM! You can certainly aggressively pursue those selling pirated copies, just as you always have.

b) When the bloom starts to be off the rose, movies land in the dollar theatres, where people pay from $1 to $2 dollars a seat to see the already used prints of the film. These theatres make no money on the movie, but get paid by underpaying high school students to sell overpriced popcorn, candy and drinks. Music that is no longer in the Top-40, but still very much on people’s minds has landed here. Drop the CD price to the $12 to $15 range. Still don’t offer any legal tracks on-line.

c) The next stage comes with the release on DVD, sometimes first for rental only, with a later release for home purchase. Music that is still in the top 100, but falling, are at about this level. Charge $25 - $30 for DVD’s and $10 - $12 for CD’s. Start to offer licensed DRM (Apple and WMA) tracks on-line. Have them charge $1.50 to $2.50 per track.

d) After a few months of DVD sales, the movie becomes available on Pay-Per-View (cable and dish). (Sometimes it comes out on PPV systems in hotels prior to this - that is roughly the same as the dollar theatre stage.) Many people record them to tape, DVD-R or TIVO at this point. Music has now lagged below the top 100. Drop your DVD price to $18 - $20, and your CD price to the $9 to $10 price. Serve up DRM’ed tracks on line for $1.00 a piece. Many of the people who wouldn’t pay $15 for a CD, but still accepted ripped copies, will now buy in to have a legitimate copy. At least they will download a licensed track or two of their favorite pieces, especially if the quality of the download is superior.

e) After a while, movies go to the premium channel line up (HBO, Showtime, etc). At this stage, the movies get a watermark overlay by the premium channel, so any recordings of it will unobtrusively but clearly show where it came from several times during the program. Music is now also dropping in active interest, but still of interest to many people. DVD’s of movies in this class should be sold for around $15, and CD’s of similarly aged music should be around $8. Now would be a good time to get new interest on-line by offering individual tracks for $1 each in open (but watermarked) MP3 format, or $0.50 for DRM’ed tracks. One could also release the movies in WMA type format for download for $10 each, $12 if people want to download the DVD extras. Watermark the movies with an overlay similar to the premium channels, but using the downloader’s name, or other personally identifiable item (phone number, account number). The re-mastering with overlay can be done automatically in real time and still keep ahead of the download speed. You only need to show it a few seconds every 15 to 30 minutes to get the job done. Now you can actually help the customer burn a working copy for personal use, and track down those that break the rules. Also include additional data channel water marks that only really professional pirates would know about or alter, so that blurring the image doesn’t remove the watermark. Also, include label and booklet printing options, but include a watermark in the printouts, and note that it is not for resale.

f) Much later, movies get a Network Television Premiere (typically during sweeps). Music is now getting cold, but still gets requested once a month or so, and is showing up in compilation albums of the best music of that earlier year, etc. DVD’s should now be in the $10 to $12 range, and CD’s could still be viable at $5 to $6 dollars. Continue to offer MP3 content online for $0.50 per track, or $4 for the full album. Now you could offer the movie online in an unprotected MPG or MOV format for $10 - $12, or WMA for $8. It should still be watermarked.

g) Finally, movies eventually end up in the late, late show line-up. Music is on best of albums, or no longer in channel at all. Typically, when movies get to this level, IF you can find the DVD, it is for sale for $5 to $10 dollars. Some movies never go here. “Gone with the Wind” and “Star Wars” are movies that are still a big deal, even after many years, just as the music of the Beatles is still constantly re-released. But for music and movies that have hit bargain basement, the internet still offers a GREAT opportunity to the big companies. Here, you can still offer tracks, CD’s and DVD’s that you couldn’t afford to re-release on plastic to any who are willing to download them, and still charge less then $3 for the movies and $0.10 a track. Frankly, at this point, all open format content and no real need for watermarks, although you can if you have the processing power to do it, would be perfectly fine. Anyone stealing content that would have cost them less to buy legitimately online than it did to get it burned and mailed, really doesn’t have a clue, and never will have any money. You will also get people perusing your library of downloadables, being reminded of content they haven’t heard or seen in years, but are willing to buy, and without your needing to pay for distribution, packaging, printing, materials or retailer overhead. (I for one would pay per episode for the Phil Silvers show or Sonny & Cher Show.)

How long movies and music stay in each of these categories depends on many factors, and can range from weeks to years. As I mentioned before, not all movies and music will go all the way down the list. Some movies start out on premium cable channels or as DVD's. However, much as people may wait for the DVD if a movie doesn't appeal to them enough to go to the theatre to see it, or they may wait for it to come to cable, if the possibility exists of a CD's price dropping with time, many will wait for it to get to the price that works for them, and then buy, but you will give more incentive to get legit copies rather than going with pirated ones.

3-My next recommendation for SONY would be to pledge to your customers that you will cease and desist all DRM efforts, and that all future CD's will be authentic RED BOOK COMPACT DISC DIGITAL AUDIO, and any copy protected CD's will be replaced with completely standard CDDA for free, no questions asked. I know you don't want to do this. You really believe that you can have a winning hand with DRM, and that you just need to get it right. You don't fully understand that your whole future depends on it. You must support fully all open standards (as well as basic WMA). You must become so very open that no one can legitimently accuse you ever again of play sneaky with their systems again. No more phoning home, no more attacks against your paying customers. And lots of advertising about how responsive you are to your customers needs, and ads about how to tell if your CD needs to be traded in, and how to do it. IT IS CRITICAL THAT THESE STEPS AND MEASURES AREN'T JUST UNTIL YOU HAVE LOWERED THE COURT ORDERED SETTLEMENT, AND THEN BACK TO BUSINESS AS USUAL! Your customers will never believe you again if you do not abandon completely this course of business planning, and that very quickly and publically. There is still a chance to save the company. Are you up to the task?