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Apple, EMI and DRM

As my colleagues Dawn Chmielewski, Michele Quinn and Joe Menn reported today, EMI is making the long-rumored leap into future of music sales -- or maybe just into the 1990s. The company announced this morning that it would make most of its music catalog available without electronic locks (a.k.a. digital rights management, or DRM, technology) at a premium price for singles ($1.29, up from 99 cents), and without a premium for albums. The limits on copying would be legal, not technological, just as they were for every format prior to digital downloads. The other benefit: the tracks will be encoded at a higher bit rate, which means better sound quality.

It's hard to tell today whether the news marks the end of DRM-locked tracks generally or just Apple's one-price strategy. For about a decade now, the major labels have clung to the dream of locking down their customers' music collections through DRM-wrapped downloads. That dream began before the original Napster emerged in 1999 to cement MP3 as the lingua franca for downloadable music, and it stayed alive despite such failures as SDMI and Liquid Audio. Ironically, Apple did more than any other company to sustain the labels' reverie by launching the first successful online music store, iTunes, in 2003, which introduced DRM to tens of millions of consumers around the world.

This dream is, shall we say, not compatible with EMI's new vision. But its competitors may very well follow EMI's lead because, frankly, what's not to like about a 30% increase in price for essentially the same product? As Jobs pointed out in today's press conference, 90% of the music sold today is on CDs that don't have DRM, so what's the big deal about DRM-free downloads? Until the CD format disappears, restricting downloads with DRM makes little or no difference to global piracy rates -- every track that appears on a CD will also pop up, free, on file-sharing networks. Instead, the main purpose served by DRM on permanent downloads is to restrain paying customers and inflict pain on them when they switch computers or trade their iPod for a player that's not compatible with Apple's DRM. If the labels want a more realistic fantasy, they can look forwarda to a wireless-Internet-enabled future where consumers stream all their music from DRM-protected online jukeboxes, rather than collecting and trading MP3s.

The bigger question in my mind is how music fans will react to the price increase for singles. How often do you hear consumers complain that the downloads they buy don't sound good enough? Probably not as frequently as they complain that the price is too high. That's why I wonder whether EMI is answering the wrong complaint. (It's worth noting that EMI has been urging Apple for some time to charge more for new releases, and Jobs famously resisted such pressure. The new deal, at least, gives consumers something for the extra money.)

Meanwhile, the offer of non-DRM-protected albums with no price premium reflects how troubled the labels are by the steep decline in CD sales, which more than offsets the rise in paid downloads. Many industry executives have long been leery of having to survive by selling 99-cent tracks instead of $17.99 CDs. But changing the relative value proposition of singles vs. downloadable albums (by raising the cost of the former while holding prices on the latter) won't changes consumers' distrust of the major-label LP and the perception that albums contain only one or two good tracks.

EMI CEO Eric Nicoli's remarks at the press conference are instructive. "We take the view that we have to trust consumers. The fact that some will disappoint us and share music is inevitable," he said when asked why EMI was willing to drop DRM from the premium tracks and albums. "The key is to give consumers a compelling experience, the best quality digital experience.... We think that way we'll grow sales, rather than diminish them." What about growing sales by giving consumers, who've been happy to trade off sound quality for lower prices and greater portability, more value for their money?


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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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