May 31, 2007 4:00 AM PDT
Will music industry dance again to Apple's tune?
news analysis Apple has plunged into uncharted waters by stripping security software off some of its music.
Never before has Apple sold songs without attaching antipiracy software--the digital rights management systems that prevent file sharing and are hated by many music fans. If successful, Apple's bold gamble to do away with digital rights management, or DRM, could act as a whirlpool that sucks the rest of the music industry into DRM-free music, say analysts.
Apple on Wednesday began selling unprotected songs from record label EMI. Shoppers have the option to purchase either a 256kbps AAC-encoded DRM-free song for $1.29 via iTunes Plus, or the usual 128kbps AAC-encoded DRM version for 99 cents.
The move is important on many levels. For the first time, consumers can play music from Apple's iTunes on digital players other than the iPod. For Apple, offering DRM-free songs could hand the company some credibility in dealings with European regulators, who want the company to open up iTunes to third-party hardware makers.
For the record industry, it once again may find itself being herded into a direction of Apple's choosing. In this situation, the record companies can only benefit, said Greg Scholl, president and CEO of The Orchard, a New York-based music distribution and marketing company.
"The only way we're going to discover the right way to grow the market is by experimenting," Scholl said. "I think the price Apple is charging is still too high and will probably inhibit (sales). But right now there isn't enough data to know what the right pricing is or how to market digital music. At least Apple is trying something new."
It's important to note that the music being offered without copy protection by Apple and EMI represents only a fraction of the most popular music.
The majority of Apple's 5 million songs still feature Apple's FairPlay DRM scheme. EMI is the only one of the four top record labels to release unprotected music. The other four account for 70 percent of the world's music. While Apple said it expects half of its music to be available on the site without DRM, most of it likely would be the millions of songs iTunes offers from independent labels.
A low-key launch
Curiously, Apple didn't exactly ballyhoo the new service. The company on Wednesday placed an advertisement on iTunes' front door amid a handful of other promotions. Customers must also first upgrade to the latest edition of iTunes in order to obtain EMI's unprotected songs.
That DRM-free music wasn't promoted heavily worried Scholl.
"I would think that if you're a major label and you don't want something to work, the best plan would be to hide it," Scholl said.
Even the staunchest DRM proponent must recognize that copy-protection software is losing some momentum. Two weeks ago, Amazon.com--the fourth largest distributor of music online--announced that a new digital music store due to open soon would also feature unprotected music. Industry insiders told CNET News.com that they expected other top e-tailers to soon try out DRM-free music.
Even Microsoft is following Apple's lead. Immediately after CEO Steve Jobs issued his February letter calling for an end to DRM, Microsoft said the total abolition of such protections would be irresponsible since they are needed for subscription music and other new business models. But the company reversed itself in April and announced plans to offer DRM-free music from EMI and others.
What Apple has succeeded in doing is to raise questions about how the music industry is pursing its digital music strategy, said Susan Kevorkian, an IDC analyst.
Chief among the questions is why the record labels place copy protection on digital songs but not on CDs.
"CD specifications never included native content protection," Kevorkian said. "New CDs purchased today aren't protected either so there's been this inconsistency in the music industry's strategy. When you have an unprotected CD, you can rip songs to MP3s and do with them what you want. We think that by pursuing a more consistent digital strategy the potential is there to reach more consumers."
The record industry has said in the past that placing copy protections on CDs is expensive. The format was developed long before the digital age or the "consumer-oriented Internet" emerged, said one record executive who asked for anonymity because she was not authorized to speak for her company.
Regardless, Apple's DRM-free offering shows how easily the company can put the record industry on the defensive. What happens if DRM-free music on Apple becomes popular?
Kevorkian suggests the music industry start worrying less about fighting piracy and more about profiting from downloads.
"They can try new strategies around prices and marketing, particular to older buyers," Kevorkian said. "There are different paths to go down to drive music sales and those paths are better than what we've seen to date."
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