Music label’s DRM-free status could alter carrier subscription biz

EMI Group has become the first major music label to offer digital music tracks without anti-piracy software. The move has some claiming digital rights management (DRM) software is slipping precariously close to its demise, while others are holding out to see what kind of traction the new product gets in the market.
EMI announced last week it will offer its entire digital music catalog on Apple Inc.’s iTunes Store without DRM software. The label’s catalog will also be available DRM-free on all other online music retailers. ITunes will be selling the tracks in the AAC format, but each retail outlet will be able to sell the DRM-free music in whatever formats they prefer, according to Jeanne Meyer, senior vice president of corporate communications at the label.
The move is sure to be received warmly by many in the wireless industry as the backlash against DRM widens. Some argue that DRM is hindering digital music sales in mobile while many other formats such as video continue to attract more downloads each month.
Regardless, music’s place in the wireless industry is tenuous by virtually every financial measurement available. Commentary in recent months has indicated that SMS revenues alone are projected to surpass more than double the heft of the entire music business in the next five years. So while over-the-air music downloads may boost revenues, they will be insignificant up against the basic data services that are already growing in popularity.
“That whole challenge to me is still there for the mobile market. How big of a revenue stream can you expect out of this?” said Mike McGuire, research VP of media at Gartner Inc.
Just months after penning an open letter chastising music executives for their continued reliance on DRM, Apple CEO Steve Jobs hailed EMI’s move as “the next big step in the digital music revolution.” But as with all revolutions, it comes at a greater price to those who stand to benefit.
EMI’s new tracks, which will offer higher audio quality, will cost $1.29 a song vs. DRM tracks, which will continue to cost 99 cents. Customers who already own DRM tracks will be able to upgrade their collection for 30 cents a track. The price for full albums will remain the same.
Many music publishers are still adamantly opposed to embracing DRM-free music, but with CD sales continuing to plummet, some believe the industry eventually will be forced to drop its protectionist slant and earn its keep by appeasing music fans and consumers who pay for music and want to be able to play it on any device.
Lack of interoperability “was just downright becoming too confusing and too frustrating for consumers,” Meyer said. “There were too many restrictions on usage . We thought that offering a higher-quality DRM option was going to be giving consumers real value for their money.”
Mark Kirstein, VP of research for multimedia at iSuppli Corp., said the move “makes some sense. From a strategic sense, it’s a very precarious move,” adding that the rest of the industry is more than willing to let EMI be the “canary in the coal mine. … I think the rest of the industry is going to resist this as much as they can.”
McGuire said “this isn’t the death of DRM,” but rather a possible shift in the use of the technology. He believes DRM eventually could help labels track usage rather than locking up the content.
Some wonder if the subscription-based music offerings that carriers have scrambled to secure in the previous year or two will be threatened by the new direction taken by EMI since it will inevitably lead to more compatibility across carriers, platforms and devices.
“To the extent that the market trends towards DRM-free then it becomes a more level playing field in terms of not needing direct partnerships or bilateral partnerships,” Kirstein said. “Interoperability is always going to be good for the consumer; it’s just going to be problematic for the record industry.”
McGuire added that iTunes and other online retail music outlets “still blur the total subscription revenue.”
Both McGuire and Kirstein expect the other major labels to react in the coming months.
Meanwhile, some independent labels are favoring digital downloads vs. traditional sales methods. Nielsen Soundscan reported U.S. sales of CDs dropped 20 percent in the first quarter vs. the previous year, although sales of digital-single tracks were up 19 percent during the same period.