Why Digital Rights Management Now?
The emergence of rights management on data managers' list of priorities has coincided with a hardening of attitudes toward licensing compliance among financial information providers.
This in turn has stemmed both from the increasing complexity of data licensing (to include elements like non-display data, derived data creation and fees for delayed and historical data) and from the disconnect between applications and the data sources that drive them. This latter phenomenon, wherein applications increasingly share data services rather than draw upon their own dedicated sources, has highlighted a lack of controls over data lineage, resulting in some highly public audits carrying significant financial penalties for the firms involved.
In these instances, firms have been forced to settle for substantial amounts with market data suppliers and exchanges when audits found widespread unauthorized use of the supplier’s data services throughout the organizations. The marketplace was startled, not only by the reported size of some of the settlements, but by the damage to the firms’ reputations as a result of the publicity.
These cases crystallize the industry-wide fear of a market data audit. But the fear manifests itself in several ways.
First and most obviously is the financial cost of settling for any unlicensed data usage discovered by the audit. Without proper entitlements and governance procedures in place, firms may find unauthorized users are accessing and consuming data sets they don’t have rights to.
This is most likely to be inadvertent. Developers working on new applications, The Industry Response for example, may draw upon existing data sets to fuel their testing routines, ignorant of the fact that this is in breach of the firm’s licensing agreement. But there have been, and most likely still are, instances of deliberate unauthorized use of restricted data. Should either be discovered through an audit, the vendor in question will most likely seek to recover the costs of
Added to the financial cost is the prospect of reputational damage imposed by a negative audit result. Once one vendor has secured compensation for unauthorized data usage, others may seek the same, raising the prospect of multiple audits. These could not only result in similar settlements but can be costly to administer, since administration and management of audit processes eat up internal resource.
The damage to the firm’s reputation can also make it difficult to attract new talent, interact with counterparties in transactions involving third-party data or analytics based on third-party data, and will likely negatively impact commercial discussions with vendors, placing the firm at a disadvantage when it comes to subscribing to new data sets.
Even where there is no audit, the cost of mitigating against the possibility of audit can be high. Firms need to conduct their own internal monitoring and assessment of data usage. This can be a highly manual process and can prove costly, especially for firms with large and complex data infrastructures.
But there are benefits to getting compliance right. Contractual Rights Management, used in concert with the correct tools and systems, allows firms to get control over their data usage. By understanding how data services are used, firms can ensure their value is optimized and any duplicate or excess services are switched off. As well as ensuring more effective management of the data services they consume, Rights Management ensures firms are compliant with their
suppliers’ usage policies, resulting in few commercial surprises in the form of unexpected additional charges for unauthorized or unknown usage. Rights Management can also help standardize access to data services and simplify delivery structures internally. It can also shorten time to market for new products, since the evaluation of the data use case and the resulting compliance review is more efficient.
For many practitioners, the threat of audit combined with the benefits of getting their data licensing houses in order, create a compelling case for embracing Rights Management. But many remain in the dark: If you’re not worried about any of the above, and you don’t have a solution in place, then you don’t know what you don’t know!