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EMI-DRM=Burger King premiums

Emi_logo Dang. I was poised to write yesterday about the EMI deal with VerveLife, but then got sidetracked writing an editorial about Michael Vick (which, I suspect, many of you would argue isn't worth the time spent on it). Then Coolfer beat me to the punch, making the point I was planning to make: that by making tracks available sans DRM, EMI will do more than simply add incremental sales on iTunes and other online stores.

But don't take it from me; here's what Justin Jarvinen, CEO and founder of VerveLife, had to say about EMI's willingness to offer tracks without electronic padlocks: "Our relationship will expand dramatically as a result of their opening up their tracks to MP3," he said in an interview late yesterday afternoon. "Our clients have been asking for major-label material for some time."

Those clients include such advertising heavyweights as Anheuser-Busch's Budweiser and Michelob, Nestle's Purina and Lean Cuisine, and Unilever's Axe. Jarvinen said advertisers don't necessarily know the niceties of MP3 vs. WMA or AAC with DRM, but when they're giving stuff away in a promotion, "they want their customers to be able to play music, or games, or anything else we do without any restrictions."

The main effect of DRM is to limit where consumers can obtain files and how they use them. For music, DRM typically renders a file unplayable on some portion of the gear people own, producing unhappy customers -- the last thing an advertiser wants to do with a freebie. For example, when Pepsi gave away free songs in early 2004, the credits had to be redeemed at Apple's iTunes Music Store, and the DRM worked with only one type of portable device -- Apple's iPod. Perhaps that's why the Pepsi promotion wound up distributing far fewer songs than planned (only 5 million credits were redeemed out of 100 million made available). At any rate, with the major labels insisting on DRM, song giveaways have been relatively uncommon since then.

Vervelife_rhymba Nevertheless, advertisers such as Burger King are eager to shift from physical trinkets to downloadable ones -- in part, I'm guessing, because the latter make it easier to collect e-mail addresses and other information about customers. And trinkets are a big business; according to Jarvinen, more than $1 billion is spent annually on "premiums." To distribute downloads, VerveLife builds customized sites for its advertising partners that can tailor the premium to the consumer's tastes (and in the process, learn even more about the consumer). An added benefit for labels is that the sites can also sell songs -- for example, enabling people who discover Hot Chip through a free download to buy more of the band's silicon-powered pop. The company calls its distribution technology Rhymba, inviting wisecracks about a certain smart household appliance. The EMI promotion with Burger King is just a pilot project, really, with the giveaways confined to the United Kingdom. But it's the first of several efforts planned by the record company and VerveLife, all made possible by EMI's embrace of MP3.

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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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