Another look at Apple and DRM

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Long before Steve Jobs penned his anti-DRM screed, lots of people were telling the major record companies that slapping electronic locks onto 99-cent downloads was a dumb idea. The ranks include David Pakman of eMusic and Dave Goldberg, a soon-to-be-ex-Yahoo VP who has been questioning the use of DRM for more than three years. I remember Goldberg talking at the Jupiter Plug-in conference in July 2003 about the pointlessness of imposing DRM on one version of a product (downloads) but not another (CDs). Right then, right now.

Anyway, when I asked Apple what to make of the timing of Jobs’ statement, the company said there was no real trigger other than the criticism Apple was getting in Europe about its non-interoperable DRM. Two sources in the online music biz, however, suggest that Jobs might have been influenced by something a bit closer to home. Last year, RealNetworks (the company behind the Rhapsody subscription service) came up with a proposal for switching to MP3s and circulated it among the major labels. In response to that, or maybe just motivated by its need for a cash infusion, EMI started offering online music stores the once-in-a-lifetime opportunity to pay the label an extra lump sum in exchange for the right to sell MP3s. The money was described as a way to reimburse EMI for the increase in piracy that was sure to come once it abandoned DRM. Not surprisingly, that proposal didn’t go over well with executives at the online stores, whose margins are thin enough already. So EMI came back with a more acceptable offer, asking for an advance against future royalties.

The deal was apparently not offered to Apple, however; evidently, EMI wanted to build up momentum among the also-rans before making Jobs and offer he might otherwise refuse. Before EMI could sign on the dotted line with the likes of RealNetworks and Napster, however, Jobs dropped his DRM bombshell. Go straight to the head of the parade, Steve! Then the Wall Street Journal reported EMI’s MP3 overtures, and suddenly the record company wasn’t in such a hurry to announce its initiative.

Meanwhile, a survey by Jupiter Research found that more than 60% of European music executives believed that DRM was hurting sales. I’m guessing that the ones who don’t are all at the C-level, plus the general counsel’s offices. The irony of the whole thing is that one of the reasons the labels have soured on DRM is the incompatibilities caused by multiple proprietary sets of electronic locks -- most notably Apple’s, which deter the tens of millions of iPod-toting music fans from shopping at stores other than iTunes or signing up for subscription music services (Apple doesn’t offer one). So whaddya say, major labels? How about an experiment with 99-cent MP3s? You can start small -- say, Scandinavia.