OMA DRM Rates Get Cut, But Is It Enough?
By Carlo Longino, Wed Apr 13 18:15:00 GMT 2005

After a lot of complaints from handset manufacturers and operators, the body that controls the patents behind the Open Mobile Association DRM standard has cut the licensing rates. But the cost still leaves the possibility of fragmentation.

Following criticism earlier this month from mobile operators and the GSM Association, the MPEG LA patent licensing group said today it was cutting the royalty rates for OMA DRM patents to 65 cents per handset and 25 cents per mobile subscriber per year, down from a dollar per handset and a contentious 1 percent of each and every transaction involving the technology.

The cuts represent significant savings for handset vendors -- 35 percent -- but operators may still balk at the 25 cents per subscriber per year. It's unclear if they're liable to pay for every subscriber they have, or just those that actually use OMA DRM-protected content. That's a big distinction: for Vodafone, with 151.8 million subscribers, it could be on the hook for nearly $38 million under the new scheme, if it's applied to all subscribers. The company would have to sell $3.8 billion of OMA DRM-protected content to equal that sum, which is out of the question for just a few years yet.

$38 million isn't a lot to a company the size of Vodafone, really. But there's the problem that MPEG LA could move to a transaction-based licensing scheme, like it originally announced, in the future, and try to seize a much bigger chunk from carriers and content providers. MPEG LA seems to have realized that onerous royalty rates could prevent OMA DRM from taking hold in the market, thus preventing it from seeing any revenues, so it has set the system up in a way with less chance of hindering the standard's acceptance. But the maximum amount it can collect is limited, ultimately, by the global number of mobile phone subscribers. A transaction-based system has no such limit, just the appetite of users to undertake such transactions. It's unrealistic to think that MPEG LA won't switch to the transaction-based method when it's financially beneficial for it to do so.

The real problem remains the possibility that the mobile world won't converge on a single DRM standard and eliminate the interoperability hassles of music on the wired Internet. It's not unthinkable that some other DRM vendor -- Microsoft, Real, Apple or somebody else -- could jump into the space and offer their technologies royalty-free to handset manufacturers, and perhaps even carriers, and make the money back somewhere else. In the case of Apple, its iTunes Music Store remains the only place selling music using its FairPlay DRM. So it could let handset vendors and operators build services around ITMS, and only worry about making its money there from downloads. Of course, given Apple's preference for having a great deal of control over every part of the user experience, it might not be the best candidate. But it's a scenario that bears thinking about.