Monday, April 2, 2007

Apple-EMI Deal (minus the DRM constraint)

Most observers have commented that the DRM restrictions on Apple's itunes is a limiting factor as users want to be able to access their purchased content from itunes as easily as content they get from buying a CD. The flip-side is the possibility of rampant illegal proliferation.

Apple wants to sell more high-capacity and newer generation ipods. The industry has recognized the inevitable shift to digital downloads as a dominant distribution channel. DRM is a thorny issue that is in between Apple and the content owners.

Enter Steve Jobs with his thoughts. His Essay is here. That set of a flurry of discussions and deliberations.

Today's announcement may turn out historic.

The deal announced today between EMI and Apple is noteworthy. The following excerpt from AP is worth reviewing.

EMI Group PLC will begin offering downloads of its music on Apple Inc.'s iTunes music store from next month minus anti-piracy software that limits its use on some players, following a deal announced Monday that is expected to prompt a sea change in the global digital music industry.

EMI, the world's third-largest music label and home to the Rolling Stones, Norah Jones, Coldplay, and Kylie Minogue, said that it is responding to an overwhelming demand from music buyers who want the ability to download tracks onto different devices.

Analysts said the deal with Apple was a bold move from London-based EMI that would be closely watched -- and then almost certainly followed -- by the three other music majors, Sony BMG Music Entertainment, Universal Music Group, and Warner Music.

"This is a message to the industry as a whole about where the digital market is going in the future," said Ovum senior analyst Carl Gressum.

The iTunes web site will be the first online retail outlet to sell the new "premium" package from EMI, which will offer all the record company's online content without restrictive anti-piracy software, known as DRM, and with enhanced sound quality.

So, what about those that have brought DRM-restricted songs from EMI? They can now by unrestricted versions for an additional fee of 30 cents for each title. According to Apple:
iTunes will also offer customers a simple, one-click option to easily upgrade their entire library of all previously purchased EMI content to the higher quality DRM-free format for 30 cents a song. All EMI music videos will also be available in DRM-free format with no change in price.

The following from WSJ elaborates on the rationale for this move.
EMI's move comes after months of private discussions and public advocacy by Internet and technology-industry executives, including Mr. Jobs, aimed at encouraging the music industry to change its approach to licensing music for sale online. In February, Mr. Jobs took the unusual step of posting an 1,800-word essay on Apple's Web site urging major recording companies to consider dropping their insistence that music be sold over the Internet with DRM software.

Mr. Jobs contended that DRM software has been ineffective at solving digital piracy of music. That is in large part, he argued, because the vast majority of music is sold today on CDs, which generally don't contain copy protection, making them easily sharable over the Internet through file-sharing technologies. Although Mr. Jobs wasn't the first to suggest such a change for the music industry, his essay spurred a vigorous debate throughout the technology and entertainment industries. Also fueling the discussion recently has been a steepening drop in CD sales, which has forced the music industry to try to accelerate its digital future.

Privately, most labels rejected the idea out of hand, but EMI, the world's third-largest music company by sales after Universal Music Group and Sony BMG Music Entertainment, already was quietly exploring dropping DRM. EMI has struggled to overcome poor results and a laggard digital strategy, potentially contributing to its willingness to take a bold stance on DRM.

It raises many questions as we think about IT-enabled transformations in the music and media landscape.

1. Will itunes be able to maintain its dominance?
2. What role for Microsoft and Zune?
3. Will we see differential pricing?
4. What does this mean for video content distribution?
5. When will other music labels follow suit?
6. What new business models can record companies adopt to increase revenue and maximize growth and profits?


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