The scenario is the following: there will be SDMI compliant devices which may be of different kinds (HiFi, portable players, car players, etc). In order to play a song on such a device, it needs to pass the gate of the secure world. To make a song enter the secure world, in has to be on an LP. The LP is then checked to insure that is it a ``legal'' one.
The two main requirements are the following:
What their algorithm does not prevent (although it's illegal) is the following: Bob buys an LP, burns a copy, gives the copy to Alice. Alice imports the songs into the secure world. As a matter of fact, it seems impossible to make the difference between an original LP and a perfect copy of it. Consequently, if Bob transmits an ISO image of the LP over the net to Alice, she should be able to burn it and import it into the secure world. However, such an image is very big, and this procedure is time consuming and may be costly.
To put it another way, it should be impossible to import an LP into the secure world if it has been modified in any way (notably if it has been compressed). Checking for the integrity of a document can be done using standard cryptographic techniques, such as MAC, or even signatures. Therefore, one can wonder at first why watermarking is needed? The problem is that legacy LPs do not include any kind of verification information but should not be rejected. Consequently, it is necessary to be able to distinguish legacy and new LPs. There is where watermarking technologies will be used.