Now that the major record labels have finally decided to drop DRM in at least some way, a new problem consumers potentially face is music companies deciding to watermark their music as an alternative measure to tackle unauthorised file sharing of purchased MP3 tracks. Unlike DRM, watermarks cannot enforce restrictions on the user, so at a first glance, it does not seem so bad. However, watermarks provide a way of encoding information into a digital recording, such as one's account number or even their personal details. Watermarks that are designed to withstand re-encoding attempts will also have at least some negative impact on the sound quality, which audiophiles may notice.
Going by Ars Technica, just like how DRM seems to have no impact on piracy, watermarking will likely be the same. However, unlike DRM, music companies that use watermarking may face even greater problems than DRM, with the main problem being privacy conerns. For example, if music a company embeds enough personal information in its music using watermarks, data thieves may become more interested in stealing its music for theft of personal details than for the music itself.
Another problem at present is that unlike copy protection measures, there are no laws against circumventing watermarks. This puts it at a greater risk of getting hacked than DRM, since hackers have less to fear when it comes to developing software to strip watermarks than stripping DRM. All it takes is a single song to be successfully stripped of its watermark for it to spread on the Internet like a major virus.
Finally, even if one decides never to use any file sharing software and has a collection of purchased music of which some is watermarked, there is still a possibility that one or more songs may end up online, such as by an infection that makes the PC's content available online. As a result, if the music industry later discovers one of these songs online, the owner may face legal action, even if it is something the person was completely unaware of, since it would be difficult to prove that the person did not deliberately share it out. A lost or stolen MP3 player, USB stick, etc. containing watermarked music could also potentially land the owner with legal action if who ever gets the item decides to share out its content online.
