In a free market, a company is free to innovate, even if that innovation is disruptive to the existing business model of the dominant players. The iPod, for example, has been successful because people can import (copy) their CD collection onto it and listen wherever they want. The ability for me to take CDs I own and copy them to my iPod is a fair use. As CDs do not have any technological protection measures, they are outside the scope of the DMCA.
Contrast that situation for DVDs. The newest iPods can play back video as well as music. However, Apple is unable to offer the same ability to import DVDs as it does with CDs. This is because DVDs to have a technological protections measure that, though easily bypassed, provides a legal framework for the content owners to prevent Apple from offering this functionality. This means that, although my CD collection has proved to have value beyond its original purpose, the only thing I can do with DVDs is play them as the studio originally intended.
This situation means that “innovation” is at the mercy of the established content players. In the history of progress, the dominant players in the industry are not the innovators. The VCR, although an innovative way to watch television, was seen as a threat to the content industry and its makers sued. The tape deck suffered the same threat. Luckily, these technologies existed before the DMCA and the Grokster decision. Nobody in America today can build the next VCR or tape deck. Either these technologies won’t exist or they will be invented somewhere else.
The Recording Industry likes to claim that “many other services are coming to market because of a secure environment rooted in the DMCA’s protections.” However, this is like the cable industry saying there is a free market for television viewing because you can choose a “Movie and Sports” package. Or the auto industry claiming there is a free market because you can choose the color of your car. Real free markets are about people choosing between products from competing companies, not by companies offering a limited range of goods that they control through a cartel.