Universal, universally compatible
I'll confess, I'm freakishly interested in all things DRM. So I've been eagerly waiting for Universal Music Group to announce that it would try selling DRM-free tracks -- something that's been rumored for a while, but only became official today. And while the actual tracks haven't shown up yet, I can't help but feel ... disappointed. The more I thought about it, the less important it seemed, at least in terms of music sales.
DRM doesn't determine whether I buy a piece of music. It determines the format of what I buy. If I want a whole album and the downloadable version has DRM, I'll buy the DRM-free CD unless it's significantly more expensive. That tells me that I have a certain price sensitivity to DRM; I'll accept it if necessary to bring the cost of the album down to the level I want to pay for it. The implication is that dropping DRM won't lead me to buy more Universal Music Group product, it simply changes my format decision. Granted, I may not be typical. I'm probably more willing than the average consumer to buy songs with DRM, burn them and re-rip them into MP3s.
Universal, meanwhile, views the DRM-free thing as an experiment. It's making the tracks available from selected online stores as a way to test the demand for these files. As early as Aug. 21, DRM-free songs will be sold through Amazon, Google, RealNetworks' Rhapsody and other second-tier providers, but not the market-leading outlet, Apple's iTunes Store. (And yes, this also seems to be part of UMG's efforts to take Apple down a peg.) IMHO, that's not the right experiment to conduct. The question is whether dropping DRM leads to more sales overall, not whether customers would rather buy the version without DRM. The answer to the latter is obvious.
I suspect Universal wants to follow EMI's lead and see if consumers will pay a premium to rid their music of DRM. That, too, is the wrong experiment. While downloadable music sales have been growing rapidly, they're still a small portion of the market. Too few people are buying them, and offering DRM-free tracks at a higher price isn't likely to expand those ranks. That's why I agree with Bob Lefsetz on this one: if Universal really wants to move the needle on sales, it should lower its prices for downloadable tracks. Based on my own spending patterns, I think the demand for music is elastic, and lowering prices could generate a lot more income. But that's just a hypothesis at this point, given how reluctant the major labels have been to test wholesale prices significantly below the current level of about 70 cents per track.
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Jon, I agree with you on this: just dropping DRM is, by itself, not going to be big deal - but it is the TRIGGER for all else. The certified seal on the fact that Controlling Distribution is Over - and licensing Access is here. But also consider the associated side-effects of dropping DRM: 1) without the cost and consumer-upsetting disruptions of DRM any online service, platform, portal and community can now become a music retailer and BUNDLE music MP3s into other charges and services (see the Napster & ATT deal: if it was $10 for unlimited MP3s on my phone THAT would move the needle, and... think further... add ad-support... $5 would really do it... think further: Spiral Frog with MP3s + Joost). 2) The price per track WILL drop automatically since bundling and product-tie ins will very quickly blur the line of the consumer knowing whether he/she actually pays for the music, or for something else that also has the music packaged in it (think net access, cable TV, wireless services, search...). And at the same time, some downloads may end up being higher priced, for reasons such as immediacy or timely relevance etc (demand will drive that, or not). 3) Let's not forget that the real trend in digital music is to SELL ACCESS - and most of that is happening on blogs and social networks, and communities, in the form of interactive, on-demand, full-length streams. That is the new radio, and that is what they must license, on a revenue share basis, and THEN offer downloads as part of a bulk / blanket / flat rate + UPSELL basis. My 5 cents. Keep up the good work. And if you want to know more read my www.muserati.com Open Letter to the Independents.
Posted by: Gerd Leonhard | August 14, 2007 at 11:21 PM