Having MS as Key Partner Is 'Double-Edged Sword'

SAN FRANCISCO (08/31/2000) - U.S. digital rights management specialist ContentGuard Inc. announced expansion on all fronts here this week at the Seybold publishing show. In addition to the upcoming release of version 1.3 of its software and growth in its consultancy business, the company also said it is expanding its intellectual property protection coverage from electronic books to include audio and video.

A spin-off from Xerox Corp., privately-owned ContentGuard, formerly the Xerox Rights Management division, has Xerox and Microsoft as two of its investors and key partners for its products.[See "Microsoft Invests in Xerox E-commerce Spin-off," April 27.]Describing the DRM (digital rights management) company's close relationship with Microsoft as something of a mixed blessing, ContentGuard President and Chief Operating Officer Ranjit Singh sat down with IDG News Service earlier this week to talk about that partnership along with the conference's hot topic -- the likely impact of the Napster Inc. Net file-sharing technology on the publishing industry.

IDGNS: What percentage of ContentGuard do Microsoft and Xerox own?

Singh: According to Steve Ballmer (Microsoft chief executive officer and president) speaking in April when we were spun off from Xerox, Microsoft has invested hundreds of millions of dollars in us. We don't disclose how much they own of us. Microsoft is a minority investor, Xerox is a majority shareholder and they're both customers of ours.

IDGNS: Is having Microsoft a key partner problematic when you want to attract other partners who have rival technologies to Microsoft?

Singh: Having Microsoft as a partner is really a double-edged sword when we're dealing with people like Adobe (Systems Inc.) who we want to be part and parcel of our offerings. When it comes to LIT (a file format used in Microsoft's eBooks) and Adobe's PDF (portable document format), they can figure it out, we don't want to be the meat in the sandwich. ContentGuard 1.3 will support Adobe as well as LIT.

IDGNS: What about signing up additional key partners?

Singh: We are open to having additional strategic partners who also want to invest in us. We're well financed to meet our needs. Strategic partners are more important to us than someone just wanting to invest in us.

IDGNS: Does ContentGuard have plans for an IPO (initial public offering)?

Singh: Our intentions are to go public in the second or third quarter next year if the market conditions are right and allow our shareholders to monetize their investment. We don't need to do it.

IDGNS: Are you praising the powers that be for Napster since it focuses more attention on the need for DRM software and services?

Singh: Yes and no. Clearly, Napster has brought the whole issue of intellectual property into the forefront, into the executive suite like never before. Before, we'd probably just talk to a company's CTO (chief technology officer), CIO (chief information officer) and chief scientist and carry out little (DRM) experiments. Companies can't bury their heads in the sand and they hope it (Napster) will go away, it won't.

We're just seeing the beginning of intellectual property with rights management and e-delivery. It's about how to monetize content and offer it for sale in very, very innovative ways. We talk about charging by the slice -- so a chapter of a book would be free and you'd have to pay to read the rest. Or, the charge could be time-based, you can read the book for the next two months, then it disappears on you. Or, you could subscribe to any number of books for a month.

IDGNS: What about the benefits and drawbacks of the technology?

Singh: Using flexible rights, you can see which method works well and duplicate it or modify them. You can get instantaneous feedback and gather data on content usage.

IDGNS: Doesn't that raise privacy issues?

Singh: Where you draw the line with privacy for what's OK and what isn't is a fine line. But I always give the example of being a frequent flyer on airlines or hiring a car. I give them a lot of information about me, but I also get benefits such as having a car waiting for me with the keys in the engine ready to go. It is a very complicated issue but comes down to 'fair use,' that the consumer can object if the information isn't being used for the specific thing they agreed to.

Take, medical records over the Net. (Using DRM software,) I could arrange to send them to my doctor so he or she can see them only while I'm there. I could timestamp the data so it's only available to the doctor between the hours of 2 and 4 p.m. when I'm there at the surgery.

IDGNS: So, how do you protect against a Napster-like assault in the publishing world?

Singh: You have to have enough deterrent to keep honest people honest. With encrypted security technology, the rights need to be powerful enough based on the value on the content. With Napster, music is being used in a way not authorized by the owner and the music company. Any way you look at it, it's illegal, they're breaking the law. However, research shows that if you provide an easy means for payment, people will pay.

(In the music industry,) with every technology -- LP, CD, cassette and DVD -- the technology has cost more as the production costs have come down. Consumers get gouged every time. Music companies need to understand the Net and where it fits into the value chain.

(In the publishing industry), people are making many moves to make content available online, the next move should be to embrace newer business models. It's the equation of price vs. value.

If you read a novel over the Net, should you pay the same price as for a paper copy? Probably, you should pay less. But with STM (scientific, technical and medical) books, Net versions could be better value, you can point and click and search them, do translations, embed audio in them, the price for e-STM books could be higher (than paper books). It's about the service the consumer gets and how it's priced.

ContentGuard, based in McLean, Virginia, can be reached via the Internet at http://www.contentguard.com/. More information about Seybold San Francisco 2000 is available via the Internet at http://www.seyboldseminars.com/.

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