Like Amazon's DRM-Free Music Downloads? Thank Apple
Amazon's Tuesday launch of a DRM-free music store with some 2 million tracks represents the music industry's clearest repudiation yet of the elaborate copy-protection schemes it once staked its future on. And though it may not be obvious at first, it's Apple we have to thank.
Along with thousands of independent labels, major music producers Universal Music Group and EMI have signed on to sell songs on Amazon's new service, representing half of the "Big Four" music publishers. True, both Universal and EMI had already experimented with DRM-free downloads, but there are signs that the rest of the industry will soon follow.
Edgar Bronfman, Jr., the Warner Music Group chairman, told Goldman Sachs investors in New York last week he was considering removing DRM from Warner's music downloads -- this just months after suggesting Warner would never abandon DRM. He blamed Apple for the apparent change of heart.
"We need some online competition" for Apple's iTunes Music Store, Bronfman said. He conceded the iPod is "the default device" and iTunes the "download model."
DRM -- digital rights management -- allows downloads to expire, or to be shared and played only a limited number of times or on certain devices.
The self-created headache for the industry is that the highly popular iPod and new iPhone only play music protected by Apple's proprietary FairPlay DRM solution or music that isn't protected at all. And Apple chairman Steve Jobs has repeatedly balked at licensing FairPlay for use on competing download services or devices.
That meant music companies had to choose between using iTunes or going DRM-free. The industry stood by and allowed most of its music-download sales to come from Apple. Recognizing opportunities lost to Apple's dominance, the music industry is moving toward throwing DRM overboard in a bid to open up new retail markets and promotional opportunities.
"As a consumer, when you buy a slice of bread you want to know you could put it in any toaster," said Jeanne Meyer, a vice president at EMI, in an interview ahead of the Amazon announcement.
Phil Leigh, an analyst with Inside Digital Media, put the industry's predicament in layman's terms.
"As long as the iPod is dominant, they're going to have to reconcile themselves with dealing with what the consumer wants: something that will play on the iPod," Leigh said. "The smartest thing they can do is sell music without DRM. It's not as though DRM is stopping pirating in other ways, anyway."
The irony of the industry's predicament was not lost on Steve Jobs, Apple's chairman. Jobs described the industry's sagging business model as self-created by EMI, Sony BMG, Universal Music Group and Warner Music Group, the so-called "Big Four" leaders of sales and label ownership, with control of 70 percent of the world's music distribution market.
"When Apple approached these companies to license their music to distribute legally over the internet, they were extremely cautious and required Apple to protect their music from being illegally copied," Jobs wrote Feb. 6 in a letter posted on the Cupertino company's website. "The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices."
Apple announced Sept. 10 that it had sold 1 million iPhones, 74 days after their June 29 debut. More than 100 million iPods have sold since the 2001 launch of the device, and more than 3 billion songs have been purchased from its iTunes Music Store following its 2003 inception.
The Microsoft Zune, by contrast, has sold more than a million units since its Nov. 14 debut in the United States, and it does not play iTunes DRM-restricted music.
Warner's Bronfman told investors that one problem for his industry is that consumers are more loyal to the iPod than to any particular artist. That means the industry's content must play on an Apple device.
"Never before in the history of content has the hardware been more valuable than the software," Bronfman said. "You think about the VCR or the video cassette -- the video cassette always had more value than the VCR that you shoved it into. Apple has been able to turn that model on its head."
Bronfman stopped short of committing Warner to selling DRM-free downloads. A Warner representative did not return messages seeking comment. A representative for Sony BMG declined comment.
With DRM headed for the dustbin, all eyes are now on Amazon.com.
The online retail giant says it will sell only DRM-free downloads. An Amazon insider, who spoke on condition of anonymity, said Amazon was lobbying Sony BMG and Warner to free up their music in a bid to help it compete with Apple.
Universal, EMI and industry insiders speak of the move away from DRM in terms of consumer empowerment or, in the words of Universal's Peter LoFrumento, "giving consumers what they want."
David Pakman, chief executive officer of eMusic, the world's second-largest online downloading site (in terms of number of downloads), says Apple's stronghold, not consumer choice, is the reason why Sony and Warner will follow their competitors and soon remove DRM from individual downloads.
"They need to have a lot of successful retailers or they won't have a growing market," Pakman said. "You can't satisfy consumers if there is only one place to buy music. In every industry, you see market growth when there are lots of different places to buy the product."
Even if DRM's days are numbered, that doesn't mean the music industry is abandoning technological weapons in combating piracy. Amazon confirmed Tuesday that some of its music downloads contain digital watermarks identifying Amazon as the source of the music.
Watermarking allows companies to silently brand music files with identifying information, such as customer- and vendor-identification numbers, digitally woven into the fabric of the song. Those hidden patterns allow music companies to track the origins of music that show up on peer-to-peer sharing sites.
Unlike DRM, watermarks don't restrict listeners' legal rights to make backup copies or lend music to friends, as do DRM schemes. But watermarks can raise privacy and liability concerns, because a person could be charged for copyright violations if the music appears on file-sharing networks, even if the consumer did not put it there.
Of the two major labels participating in Amazon's music-download service, Universal Music Group uses watermarks, and EMI -- for now -- doesn't.
Universal spokesman Peter LoFrumento said the company will not embed a music buyer's identity into an MP3 file. Instead, Universal's watermark will encode where and when the download was purchased. He said that would allow the company to study the relationship between lawfully purchased music and online file-sharing sites. "This is just a trial," LoFrumento said.
EMI's music is, at the moment, the most unshackled. The company offers DRM-free downloads through Apple, Wal-Mart and the new Amazon service, and says it has no plans to add watermarking.
"We don't have current plans to do that -- watermarking," said EMI's Meyer. "The whole point of what we're doing is, we want to give a seamless experience so consumers can buy music from anybody and play it on any range of devices."
Live wirelessly. Print wirelessly.