Digital Media

Much is being made this Friday over Amazon's move to essentially forcibly recall two e-books that some customers had purchased.

According to multiple reports, Amazon removed the books from users' accounts after the publisher decided to pull its e-book. (My favorite headline, by the way, was Seattlest's "Amazon's Kindle: Now with new take-backsies feature".)

(Credit: Amazon.com)

The publisher is certainly within its rights to stop selling the e-book and certainly Amazon needs to honor those wishes. But its hard to understand by what rights the retailer can remove the book from those who have already purchased one of the titles.

The added irony is that one of the two books in question is George Orwell's "1984." The other is Orwell's "Animal Farm."

The New York Times David Pogue quoted one reader that likened the move to "Barnes & Noble sneaking into our homes in the middle of the night, taking some books that we've been reading off our nightstands, and leaving us a check on the coffee table."

Peter Kafka at All Things Digital cites Amazon's terms of service, which don't seem to permit the move, noting that once users buy a book, they get "the non-exclusive right to keep a permanent copy of the applicable Digital Content and to view, use, and display such Digital Content an unlimited number of times, solely on the Device or as authorized by Amazon as part of the Service and solely for your personal, non-commercial use."

Even if there are contract terms somewhere that permit this, it sets a terrible precedent for the company, as it plays into some of customers' worst fears around digitally protected content.

One of the things I value as a customer of digital content is the idea that I can keep a book and have it with me whenever I want. It's one of several reasons that I own one of the e-book readers.

The idea that at any point Amazon can take it back and give me a refund is disturbing, to say the least. I've asked Amazon for comment and will let you know what I hear back.

The idea of a digital music kiosk, where customers can walk up, press a few buttons on a screen, and download music to some sort of portable storage medium (disc, phone, flash card), has been around for a few years now. Starbucks ended a two-year experiment with in-store CD burners back in 2006, and U.K. music retailer HMV began offering free downloads to USB drives from in-store kiosks in 2007.

CDs are so 20th century.

(Credit: MOD Systems)

Even if the trend hasn't exactly taken off, companies continue to try them out. Earlier this week, Seattle-based start-up MOD Systems entered the fray, announcing that it had signed deals with all four major labels, allowing it to package more than 5 million DRM-free songs for digital distribution via in-store kiosks.

There's a bit of irony in the announcement, as MOD co-founder Anthony Bay used to lead Microsoft's Windows Media Division, whose business model relied heavily on DRM (digital rights management). Microsoft hoped to convince content owners that it had a robust DRM system so they'd use Windows Media technologies to encode and host their content. But that was almost 10 years ago, and now that the recording industry has come around to the idea of selling DRM-free tracks on iTunes, Amazon, and countless other online stores, there's no reason to restrict retail kiosks from doing the same.

So is there any future for digital music kiosks? It's hard to imagine shopping at a digital-only record store when it's so much easier to buy MP3s over the Web on my home computer--which is where I store them anyway--or over the air from a phone or wireless-connected player. But kiosks might find a place in multipurpose retailers and big-box stores, where they'd take up a lot less space than the CD racks currently in place, or in other places with lots of foot traffic--hotel lobbies, malls, university campuses, and so on. I can even imagine a jukebox that not only lets you play songs, but also lets you download them to a flash drive--great for those late-night impulse buys.

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We here at CNET get all of our movies and music the old-fashioned way: through hard work, grit, and elbow grease. We roll up our sleeves, suck it up, and put in the hard work. (Sorry, I was going for the record of most cliches in one paragraph there. I can't confirm what I just wrote is actually true.)

So, yes, CNET does it the hard way (I think), but not everyone does. In University of Cambridge professor Patricia Akester's report titled "Technological accommodation of conflicts between freedom of expression and DRM: the first empirical assessment,"--which, no, I didn't read, because it's like 200 pages long--she lays out the effect DRM (digital rights management) restrictions really have.

Feel free to dive into that report if you have the time, otherwise I suggest you check out her much shorter summary here.

In the report she notes that when people who are legally attempting to access DRM content (like film lecturers putting together clips from movies for educational purposes) and they hit a DRM restriction, they are driven to instead download DRM-free, illegal copies of the content to get the job done.

Not the most surprising news, and it's another win for those who believe the way DRM is currently implemented hurts more than helps. Now we have a study that says because of DRM restrictions, people are driven to download illegally. I think that's the definition of backfire.

Also, she notes that while the Information Society Directive puts the onus on the content owner to voluntarily allow DRM-free access to said content in these cases, not all content owners do so until regulatory authorities step in.

The good news now is that I finally have an excuse to download all the movies and music I want for free!! Woot! Thank you, Professor Akester. Thank you for letting us laugh at DRM, again.

SpiralFrog users can continue to play songs obtained from the now defunct company for two more months before they become inaccessible, according to a source close to the company.

The ad-supported music service shuttered its Web site late Thursday evening and ceased operations, the source told CNET. Some customers of the service asked on Friday how long their music, which is wrapped in copy-protection software, will continue to play. A source familiar with SpiralFrog's operations said the service's digital rights management technology, designed to prevent unauthorized copying, will lock up the music indefinitely after 60 days. The songs could live again should SpiralFrog's assets be acquired and the new owner decide to relaunch the service, the source said.

DRM critics will certainly cite this as further proof that the technology is anti-consumer. The software remains hugely unpopular among many music fans for limiting their ability to play songs on devices of their choice. The critics argue that a person never really owns DRM-locked music because they need server keys provided by service operators to unlock the songs. But Christopher Levy, a vocal proponent of the technology and considered one of the leading experts in the field, questioned whether customers should be angered about losing music they never paid a cent for.

Christopher Levy

(Credit: BuyDRM)

"(Protecting songs with DRM) was the only way that SpiralFrog could offer the model," Levy said. "The record labels refused to go to market without it. This was a very good business proposition for consumers. They received free music as long as they agreed to be bombarded by advertisements...I think it's hard to criticize the company...I think 60 days is very impressive."

Levy, who owns the company BuyDRM, says consumers deal with DRM every day in ways they don't notice. The technology is improving and soon it will be even less obtrusive. The technology helps protects the rights of content creators, consumers, and technologists, he said.

"When DRM is right in the middle of all three, that is where happiness is," Levy said. "Consumers are getting more comfortable with DRM and it isn't going away. It may need to change, but it's not going away."

Antipiracy software is used by the film industry and by music subscription services, such as Napster and RealNetwork's Rhapsody. But in the past year, download sites like Apple's iTunes and Amazon have rejected copy-protection software with the blessing of the major record companies.

The Federal Trade Commission on Wednesday is hosting a conference on the use of DRM at the University of Washington School of Law, said Levy, who will speak at the gathering.

According to an FTC press release, DRM "is expected to become increasingly prevalent in the U.S. marketplace in the coming years" and address "the need to improve disclosures to consumers about DRM limitations."

Universal Music exec Rio Caraeff (left), with R&B singer Akon, says Universal is more flexible and willing to experiment with new technologies than ever.

(Credit: Anne Gim)

q&a Rio Caraeff didn't come up in the music business scouring nightclubs and honkey tonks for talented new acts.

Caraeff, executive vice president of Universal Music Group's eLabs, has a background in mobile technology and software. Nonetheless, he just might be the prototype for the label exec of the future.

Unlike more traditional industry suits, Caraeff doesn't believe litigation is the answer to piracy. He doesn't believe in copy-protection software. He doesn't believe that the music industry needs to find a strong competitor to Apple to flourish. What he does believe in nurturing new revenue streams and pruning 10-click online music shopping to one. He believes in the power of mobile devices to sell music (he says Google's cell phone, Android, is proving to be a powerful music-buying tool).

He appears to be right in at least some of his beliefs as Universal, the home of U2, Akon, and the Black Eyed Peas, is coming off a productive year. For the first nine months of 2008, Universal reported that revenue was up 3.5 percent to nearly $4 billion and digital sales grew 33 percent.

Perhaps the best illustration of how Universal and the rest of the music industry is starting to catch on is the disappearance of digital rights management, the software that attempts to block unauthorized music copying. DRM, which failed to do much more than alienate those who bought music legally, was done away with last week at iTunes--the country's largest music retailer. Last month, the lobbying group for the four largest labels said it was moving away from suing individuals for file sharing. Caraeff agreed to speak with CNET recently.

Q: The music industry was accused of trying to kill digital music rather than understand it. Compare the industry's attitude then to now.
Caraeff: I think we've definitely learned a lot over the last few years. We're much more flexible. We're more experimental. We're trying new things constantly. There is nothing we won't try. We're continually revising our business models. And we're reacting to what the marketplace is asking us for both in terms of what customers want as well as what our distributors and artists want. It's clear that fans like to stream music on the Internet. We wanted to figure out how to create a business model to allow audio to be streamed on a free-to-consumer basis online. Before we had an ad supported streaming model for audio we had a subscription-based program for streaming audio and that's basically a small amount of people who are willing to pay for that. But we look at the scale and size of the opportunity so we created a new model to allow audio to be streamed in full-length high quality on demand fashion. We put those deals in place with everybody from Last.fm to iMeem to MySpace and a variety of other sites where you can stream anything you want on demand for free.

The removal of DRM on songs and albums is also a major example of how we've changed, both in terms in enabling existing retailers that works on devices like iPods. We're not saying we're inflexible. We're saying we're going to change, we're going to adapt, we're going to listen to what the market is asking for, we're going to accommodate.

These are some small examples of how we've changed. Our culture across our management, across our labels is very much in tune with creating new business models, diversifying where our revenue comes from, listening to what people want to do with music and coming up with ways to support that instead of suppress that.

Q: What about piracy? Do you guys just let the RIAA handle that? Or do you direct some of the strategy there?
Personally I believe the only long-term solution is a marketplace based solution, you address the needs of the customer to give them what they want when they want it. If we don't there are other services that don't have the same rules who will. Basically pirates have every advantage. They have no licenses they need to take, no rules they need to abide by, no geography with which they have to be concerned about. That's our competition. You have to compete with that in a marketplace based model. Other tactics, such as litigation or other legal remedies is something we always reserve the right to pursue, but I don't believe that's a definitive or long-term fix. I don't think we're ever going to ever eliminate piracy with the most progressive and aggressive digital policies. There's always going to be people who have more time and money and the thrill of circumventing the channel is what its about. It's not about getting the music. Our goal is to give the mass market every opportunity to consume music wherever and whenever they want in a convenient and easy way so it's just not worth it to get involved in a gray or black market.

Q: Tell me about mobile. You come from that sector and you obviously believe in it very much. How have you guys benefited from handhelds?
I joined the company in 2005 with a specific mandate of building a large mobile business for Universal. My background is in wireless and software. So over two years I built a very large mobile business, well in access of $100 million. We built a distribution network. We built relationships with every wireless operator and every device manufacturer. We established channels of distributions so we could put our content through to every one of those partners. We started developing new content so it wasn't just ringtones or re-purposing old content for mobile. We started diversifying away from ringtones. We launched ring-back tones, we launched voice and video tones. We launched full-length music sold over the air to the mobile handset. We launched mobile video services that were both paid and free to consumer under ad models.

We also merged our mobile group with our online group recognizing that the world is changing. The customer doesn't want a mobile only experience. They want an all digital multi-platform experience. They want to consume music on their mobile handset but have parity on their PC and other online platforms. Partners like Verizon and AT&T wanted to have multi-platform online experiences as well. It didn't make sense to have a silo approach. Now at Universal, we don't have a mobile business. We don't have an online business. We just have one multi-platform digital business. We equalized our pricing so it costs the same amount of money to buy a song on a cell phone as it does on a PC. These are things that make sense on a consumer perspective.

Other things we included were helping Amazon to launch its music store. We worked with Amazon to get their store integrated into the Android platform and now Amazon will tell you that Android is their single largest source of downloads from any third-party partnership that they've ever done. It's a tremendous amount of consumption that we're seeing once you integrate it seamlessly into a user experience that's elegant and easy to use. It's not 10 clicks. It's very elegant and easy. We're starting to see consumption increase significantly.

It's early days on Android. There's not that many out there on T-Mobile, but even with the small amount out there, they're downloading and purchasing a ton of music over the air on T-Mobile. It's not the first example of where we've integrated a music store into a cell phone but the example is once the device becomes more full featured with the user experience it becomes easier to use. Once the platform evolves, you'll see music consumption really start to skyrocket.

Q: How big is mobile within your digital business?
About 40 (percent) to 45 percent of our overall digital business is coming from mobile channels like Verizon and AT&T.

Q: So this is the new distribution method?
I think you're right, but the future for us is about dozens of unique revenue streams and dozens of different products. It's not about just selling a CD anymore. We have subscription based annuity models, we have download models, free to consumer ad models. On much of our new front line Pop or R&B or Urban release--everything from Fergie to Rihanna to Pusscat Dolls--were seeing mobile comprising 20 (percent) to 45 percent of the revenue for those artists, which is a tremendous amount.

Q: Let's talk about MySpace and Amazon. Does the fact that they don't have a device hold them back from competing with Apple?
I don't' think not having a device is holding them back per se but I think that there is something to be said for an elegant and integrated solution, a complete thought so to speak that Apple has breathed into the market. The entire ecosystem of a proprietary player and a dedicated store and a seamless integration has been a very powerful thing for our industry and for Apple. On the other hand, I think many people already have devices. They have iPods, they have mobile phones that play music. It's really about getting the Amazon store to work seamlessly with the devices and software you already have or getting MySpace services to work well with the services you already have. I don't think having more devices and more proprietary software or hardware in the market is the right answer. Microsoft has been trying to do that now for a few years with their Zune ecosystem. It is elegant, it does work well, but lots of proprietary silos I don't think scales well either. So I think what's missing is the evolution of the middleware, the evolution of the user experience, turning 10 clicks into one click, more elegant software and more elegant web services, which I think need to evolve a generation or two.

Q: Talk to me about YouTube as a music hub
If you look at where the bright spots are in the music industry, certainly in the last year the rise of free-to-consumer ad-supported video has become a very significant part of our business coming from a variety of areas. YouTube is driving a very large quantity of that, but about 70 percent of that growth is coming from outside of the U.S. YouTube is a large driver of that outside of the U.S. as well. It's really coming to fruition I think in part due to YouTube's recent focus on monetization and really trying to drive revenue around premium content more so than they have in the history of their short existence. They have finally turned the spotlight on 'How do we turn this into a business' and that's benefiting the entire ecosystem of content owners as well.

YouTube is in many countries. It's a dominate source with which customers and music fans go to find out about new music and to sample music and consume music to discover content, to participate in a community around video and so it's become more than a store and its not like radio or TV, but it's become essentially a very powerful place with which our record companies work with our artists to drive awareness and drive links back to their site and drive general marketing and promotion and distribution of our artists. At the same time it's inherently revenue generating.

It's not like radio, where it's just promotional. It's a revenue stream, a commercial business. It's growing tremendously. It's up almost 80 percent for us year-over-year in the U.S. in terms of our revenue from this category. We have a great relationship with YouTube, and the future for us will be more than with YouTube than we're doing today. We're working with them on a variety of new concepts and new businesses to take the groundwork we've done in the last year and half and do a lot more with it. I wouldn't expect to see us just do business with YouTube like we used to do. You'll see us get closer to YouTube to do things we've never done before and try and increase the amount of revenue and the reach for our videos and new programming we want to create around our artists.

Q: So you are seeing some good revenue from this YouTube deal?
Yes. It's early days but it's definitely tens of millions of dollars at this point.

Q: What about the shift away from DRM?
We recognize the sale of downloaded music only meets the needs of certain customers. We would love it of course if everybody downloaded music but we recognize that's not the way the world works. A big part of my job and a big part of our strategy is figuring out how to derive revenue from everybody who consumes music when only a small subset of people who choose to buy it. A lot of that ties back into a long-term strategy shift about how do we shift from a revenue per unit model to a revenue per user model where the metrics for success and the metrics for how we define and grow our business are driven by what type of revenue we're getting from every user who accesses the network, every user who has a music-capable handset.

Even though only a small percentage may actually choose to download and buy music, a large percentage will actually consume music. We're asking how do we build new business models that will allow us to get paid by hundreds of millions of people whether they buy music or don't buy music versus getting paid by those who choose to pay. It's really about do we want a large piece of a small pie or a smaller piece of a much larger pie. That's really about looking out five years ahead in terms of how we transform UMG from the company we used to be to the company we need to be.

Q: That sounds like a big challenge.
That's how everybody at our company is approaching the business. It's certainly what gets me excited about coming to work in the morning. The change and disruption in the music industry and many other industries as well is personally satisfying and drives a tremendous amount of excitement. I'm part of something that's larger than myself. It's the opportunity to change and transform. It doesn't happen quickly enough. Conversations with partners like Google, Apple, or Comcast, or Nokia are slow take time to come to fruition. We're certainly not about how do we get everybody to buy CDs again. We're very much focused on how do we segment the market so that we can derive revenue from everybody and not just the people willing to pay.

Updated at 4:30 p.m. PST with details on the file formats Apple is using.

Apple and the three largest music labels didn't take any half steps in walking away from copy-protection software at Macworld 2009 Tuesday.

Apple could have announced, as expected, simply that the iTunes Store would begin offering songs stripped of digital rights management from now on. Instead, the country's largest music retailer secured licenses that will enable users to upgrade their existing DRM-wrapped music and strip it of the controversial software--but it's going to cost them.

An Apple spokesman offered more details: Users of iTunes can now upgrade their music libraries with a click of a button. For an additional 30 cents per song, a user can receive a DRM-free version of their existing tracks at a 256-kbps bit rate.

The iTunes files will still be in Apple's preferred AAC format, not the more widely supported MP3. But as Matt Rosoff points out, a lot of recent digital music products do support the AAC file format, including Sony's newer Walkman players and Microsoft's Zune and its next version of Windows Media Player.

Starting Tuesday, Apple will offer 8 million DRM-free songs and will add another 2 million by April. The hold-up for the remaining songs is due to licensing issues, according to my sources.

Photos: Jobs fill-in touts media, MacBook updates

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I'm not going to gripe about that. Those kinds of details work themselves out, and it's impressive that Apple and the major labels--Universal, Sony BMG, and Warner--worked out a deal for the 8 million.

With the move, Apple's iTunes is also making its strongest foray into interoperability. From now on, iTunes' music should play on any digital player, meaning iTunes users don't have to worry about their music libraries being locked out of some future digital music player.

Apple had already offered DRM-free music from EMI, the fourth-largest music label, at a higher bit rate for a premium price.

Click here for more Macworld Expo coverage from CNET News.

A new digital music service is getting lots of attention for proposing to help consumers sell their used MP3s in much the same way people once unloaded second-hand albums.

Bopaboo has generated splashy headlines recently for coming up with what on the surface seems like a good idea. Music fans have always exercised their first-sale rights, which under copyright law, allows them to sell their unwanted CDs, tapes, and albums without permission from the copyright owner. Why can't they do the same with digital music?

But there are dramatic differences between physical and digital music. For this reason, Washington, D.C.-based Bopaboo appears to be careening toward a head-on collision with the recording industry. According to Bopaboo CEO Alex Meshkin, he will soon meet with executives from the major labels and execs there will no doubt ask why they shouldn't set their attorneys loose on the service. They may also inquire about the controversy that dogged a then 23-year-old Meshkin when he was owner of Toyota's NASCAR team.

As for the legal questions involved with MP3 resales, Meshkin, 28, argues that the law allows consumers to sell digital media files in the same way they do physical media. That's not all together accurate. Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation, an advocacy group that supports Internet-user rights, says to the best of his knowledge, the issue has never been addressed in court.

Even von Lohmann, a well-known champion of the technology sector, sees potential problems with Bopaboo's legal argument. He says while its true that under the first-sale law people are allowed to sell CDs and other physical goods, it hasn't been established whether the law covers digital media. The good news says von Lohmann is that Bopaboo could raise the public's awareness about what may one day be an important issue for digital music.

"We shouldn't lose our first-sale rights just because the second-hand stores involved are online," von Lohmann said. "Up to now, there hasn't been a huge opportunity for people to spend large amounts of money on digital music, but as time goes on some music fans will have thousands of dollars invested in their digital libraries or audio-book collections. It would be a big change if you weren't allowed to sell them."

For Bopaboo to survive, the company will likely have to avoid a legal fight with the top four recording companies. For other digital-music services that have devised new ways to exploit music, the choices have always come down to partnering with the labels or getting sued. Meshkin said he will soon meet with music-industry representatives in New York and has already met with other important players in the sector. "The talks so far have been positive," Meshkin told CNET News on Wednesday.

One label executive I spoke with disputed Meshkin's version of the negotiations. "There haven't been any talks," said the executive. "They have asked to meet and we responded. That's it." A spokesman for the Recording Industry Association of America (RIAA) declined to comment.

To say that Meshkin has a tough job selling his idea to label honchos is an understatement. Bopaboo's service works this way: sellers register and are given an MP3 store where they upload the music they wish to sell. Music protected by digital rights management software isn't allowed. Bopaboo makes money by taking a percentage of sales.

The main difference between selling physical goods, such as a CD and selling a download is that a seller of physical goods loses possession of the merchandise after it's sold. That is not the case with digital files.

Controversy followed Alex Meshkin, far left, as a 23-year-old NASCAR team owner and now as the owner of Bopaboo, a digital marketplace where users operate their own download stores.

(Credit: Alex Meshkin)

A person could transfer numerous copies of the same song file as long as it was free of DRM. But Meshkin says his company can prevent repeat sales of the same song. Bopaboo has developed song-identification technology that prevents individuals from uploading more than one copy of the same song to the site regardless of how the file might be altered, Meshkin said. A copy is always produced when MP3s are transferred and that is retained on a computer's hard drive.

Meshkin didn't have any technological solution for that. He said that in such harsh economic times the music industry must accept a few risks. After all it was they who allowed their music to be sold without DRM in the first place.

"Obviously, MP3s are very easy to duplicate," Meshkin said. "It's very difficult to tell the difference between a so-called new copy and a so-called old copy."

The label guys are unlikely to just shrug their shoulders at this kind of set up, said von Lohmann.

"If you buy a song from iTunes' (DRM-free) store you can immediately go and sell a copy of the song on Bopaboo," von Lohmann points out. "You would be assured of getting a discount on your iTunes purchase. There is no doubt that the first-sale law was drafted with physical objects in mind. There's no question that you are allowed to sell books or CDs. But when it comes to selling MP3s, it's an untested legal question."

Another problem for Bopaboo, says von Lohmann is that some digital music stores specifically forbid the resale of songs. At Amazon.com for example, the terms of use agreement says customers must agree to "copy, store, transfer and burn" digital music for personal-use only. Customers also agree that they won't "redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, sub-license or otherwise transfer" the music.

I spoke with two label representatives who declined to comment for the record but told me they thought the resale of DRM-free songs could be the music industry's next big legal battleground.

Patrick Ross, executive director of the Copyright Alliance, a watchdog group made up of artists, producers and other content creators, chuckled when I explained Bopaboo's business model.

"Clearly a first-sale defense won't apply here," Ross said. "In the case of a book or any other creative work, you no longer possess the work once you sell it...It's also hard for me to imagine the model succeeding because if somebody wants to pay for works they will pay for it at a legal site and see that creators are compensated. If they are willing to break the rules, they would just go on (P2P service) Lime Wire and get it for free. I hope (Bopaboo) crashes and burns before it gets sued. It seems like a flawed business model as well as an illegal business model."

If the business model isn't a hard enough pitch to make to the music industry, Meshkin has the added burden of trying to explain his past.

In a February 2005 story, BusinessWeek questioned some of the claims Meshkin has made about his background and highlighted the controversy surrounding his oversight of a NASCAR racing team for Toyota at the age of 23.

According to the story, Meshkin was sued by one former executive with Bang Racing, his NASCAR team, and accused by some investors of misleading them about his personal wealth and ability to operate a racing team. Meshkin is quoted in the magazine denying the accusations. Toyota eventually pulled its support.

Rumors coming out of Europe that claim Apple will begin offering unprotected music files from the three largest recording companies on Tuesday are bogus, according to my music-industry sources.

Yes, Apple is in negotiations with the three biggest music labels, Universal Music Group, Sony Music, and Warner Music Group about acquiring licenses to sell music free of digital rights management software.

No, none of the deals is final as of Monday afternoon and one source told me it's unlikely Apple will have anything to announce regarding DRM-free music from the top labels before the end of the year. According to AppleInsider, a French tech-news site, ElectronLibre claims Apple will remove DRM from tracks published by the top three labels on Tuesday.

An Apple representative could not be reached for comment.

It's important to note that Apple and the music industry have been in talks before. Only one label, EMI, the fourth largest of the majors, offers DRM-free tracks on iTunes.

Many iTunes' competitors offer music stripped of copy-protection software and some fans of Apple's digital music store want Apple to follow. DRM software prevents music owners from freely moving their music to different devices. Another risk DRM poses to music owners is if a music vendor should stop issuing server keys the music will be locked onto whatever device it resides on.

To: Apple CEO Steve Jobs
From: Greg Sandoval, CNET News
Re: Acquiring DRM-free music

Steve, give us DRM-free songs for Christmas

(Credit: James Martin/CNET Networks)

The iTunes music library is looking a little shabby these days. Look around, Steve: iTunes is the last great refuge of DRM-laden downloads. Is this the image you want for Apple?

More than 18 months have passed since you signed your one and only deal to acquire music free of copy-protection software with a major recording company. And that was with EMI, which accounts for less than 9 percent of U.S. album sales and is the smallest of the four top music labels. In the meantime, Apple has continued to wrap the vast majority of major-label music in Fairplay, the company's proprietary digital rights management software, at a time when your major competitors have already signed DRM-free deals with all the big players.

If you cling to this position, iTunes is going to look stodgier than that "PC guy" you're always mocking in your commercials. Zune offers more DRM-free music, signing agreements with EMI, Warner Music Group, and just this week, Universal Music Group, the largest music label. Steve, DRM inspires hatred from all the cybergroovies, many of whom swear loyalty to Apple products. It's time to dump this loser. Even the major labels have recognized this. I'll get back to that.

You now have a golden opportunity to make things right. I've heard about your negotiations with the three largest music labels about acquiring music unburdened by copy-protection software. My sources said that no deals are final but that one top label is closing in on an agreement.

Close them, Steve. Close all of them. I'm going to point out the obvious: striking these agreements would be good for Apple, the recording industry, and certainly for Apple customers.

DRM doesn't fit with Apple image
I realize cutting a deal takes both sides to agree. But you and the music industry have blamed each other for the absence of DRM-free songs on iTunes for more than a year, certainly since you published your now famous open letter of February 2007. That's when you called for the labels to abandon DRM. I'm sure you know music execs always laughed at this and suggested that your argument was a tad disingenuous. They said your DRM fit perfectly with your plans to lock customers into buying music that played only on Apple devices.

I think I can speak for your customers here. They don't care who's responsible. What really matters to them is that it's time to do more than write letters. You must recognize that the time is perfect for you to act. The climate surrounding digital music is vastly changed since you wrote that letter. The labels admit now their DRM strategy has failed.

Check out what Edgar Bronfman, the head of Warner Music Group, said earlier this month: "We're not technology companies...We never came up with a version of DRM that did what we needed it to do."

Doug Morris, Universal Music's CEO, called you a friend and one the smartest men in music during a recent interview. Sounds to me like these guys are ready to deal. They must know that it's in their best interest for iTunes, the country's largest music retailer online or off, to have everything it needs to move music. Sure, they want iTunes to have some competition. They fear you will grab too much control over digital sales...again.

That's likely why all four major labels have provided music sans copy-protection software to your chief rivals: Amazon.com, MySpace Music, and Wal-Mart Stores. I'm not naive enough to think that's an accident.

But all the signs point to a music industry, at least with regard to digital downloads, that wants copy-protected songs buried.

Take away competitors' advantage
Just consider the benefits to Apple if you acquire DRM-free songs from the three largest labels:

• You snatch away the most important competitive advantage that any of your rivals possess. Amazon, MySpace Music, and Napster have been touting their DRM-free libraries. Amazon appears to be the only place where DRM is making much of a difference. The Web's largest retail store doesn't break out numbers, but in April, research company NPD Group reported that Amazon's MP3 service was showing signs of growth based on consumer sampling.

• You can give iTunes' tech-savvier customers peace of mind. Sure, they represent a tiny sliver of your customer base, but they're also the most vocal. They're the ones who have been calling for an end to Fairplay for a long time and understand that one day Apple could stop issuing DRM keys and leave their music stranded.

Remember, Steve, DRM schemes were proved to be anti-consumer this year. MSN, Yahoo, and Wal-Mart all made announcements that they planned to stop issuing DRM keys. They all were widely criticized when customers realized that without the keys, songs couldn't be moved to new devices or computers. All three capitulated. Sure, Apple appears to be an immovable force now, but who knows about five years from now? Fairplay is DRM and that means it's vulnerable to this key issue.

Do you really want to follow in this group's footsteps?

• Apple also will avoid alienating customers in the case that a company develops a popular music player that people can't play their iTunes libraries on because of compatibility issues. I've always said that in this scenario, Apple could lose a lot of good will.

Apple needs to prove the naysayers wrong and show that the company was never interested in locking customers into buying its music or music players. Apple has to show that it knows the best way to build an empire is to design products people want to play their media on--not players they have to play their media on.