EMI's decision to drop DRM good news for consumers

Albums get boost, subscription music service to benefit, says analyst

EMI Group PLC's announcement that it will ditch digital rights management (DRM) restrictions on tracks sold through Apple Inc.'s iTunes music store is a major win for consumers, a smart tactical move by both companies and possibly the turning point in making digital the way music is sold, an analyst said today.

At a joint news conference held in London earlier today, EMI Group CEO Eric Nicoli said that DRM-free tracks and albums will be sold on iTunes starting next month. Per-track prices will be bumped up 30 cents to $1.29 each, but DRM-free albums will be priced the same as those sold with copyright protections in place. Sound quality of the premium tunes will also be increased, from 128Kbit/sec. encoding to 256Kbit/sec.

"We think our customers are going to love this, and we expect to offer more than half of the songs on iTunes in DRM-free versions by the end of this year," said Apple CEO Steve Jobs at the announcement.

Nearly two months ago, Jobs used an open letter to urge the major music label companies to abandon copy protection. His idea was met with instant criticism from some record executives, including Warner Music Group CEO Edgar Bronfman, who called the idea "completely without logic or merit."

Not so, said EMI's Nicoli. "Offering consumers the opportunity to buy higher-quality tracks and listen to them on the device or platform of their choice will boost sales of digital music," he said today.

Aram Sinnreich, managing partner at Radar Research LLC, a Los Angeles media consulting firm, agreed. "EMI gets a nice boost from this" by being the first major label to offer its catalog DRM-free, he said. "It's not only very good news for consumers, but smart for both companies in the short and long term."

The way Sinnreich laid it out, Apple had to push for freeing music from copy protection, even though it's been the biggest beneficiary from the proprietary nature of the iTunes-iPod combination. "Jobs' rhetoric [in his February letter] didn't cover the real reasons," said Sinnreich. "Apple's had all its eggs in the iPod-iTunes basket, but the growth of mobile distribution poses a great strategic threat to that.

"Jobs is smart and sees that for Apple to forestall any serious competition from the wireless carriers, the music has to flow freely between devices and platforms," Sinnreich said.

EMI, he added, was also thinking about wireless when it pulled the DRM-free trigger. And it could see what was coming. "The tide is turning on consumer's willingness to tolerate DRM," said Sinnreich. "Everyone sees the writing on the wall."

The move by EMI -- which, though it has the smallest market share of the four major labels still retains what Sinnreich called a "very deep catalog" that includes the Beatles -- may be a game-changer. "This could turn out to be the turning point in digital music sales," said Sinnreich.

Like other analysts, Sinnreich believes that freeing digital music of copyright protections will boost sales overall. His take today, however, was based on an almost-overlooked aspect of the EMI-Apple deal.

"The only way the fall in CD sales is going to be stemmed by digital sales is if consumers buy in volume rather than by track," Sinnreich said. "The new pricing model makes the relative album higher than it was relative to track-by-track." When Apple's iTunes starts selling DRM-free EMI music in May, for example, the Rolling Stones' Sticky Fingers album will still sell for $9.99, but if its 10 tracks are purchased separately without copyright protection, the total will come to $12.90. Last week, Apple made another album-centric pricing change when it said users would be credited for any track purchases they had previously made when they later bought the album.

"This is a great move for consumers in another way," said Sinnreich. "Longer term, it will allow subscription music providers, who give a much better consumer value than iTunes, access to the iPod market."

Currently, subscription music services such as RealNetworks Inc.'s Rhapsody and Napster LLC's Napster, offer to-go plans that let users load up digital music players with any tracks in their catalogs. But because of the DRM technology that Apple applies to the songs sold through iTunes and that is integrated in the iPod, those services can't mesh with Apple's device.

"Once music is unlocked, subscribers to those services will be able to play their music on iPods," said Sinnreich. "It's the only thing that's been holding them back."

Copyright © 2007 IDG Communications, Inc.

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