Much to some readers’ chagrin, we don’t believe that the music labels’ belated embrace of DRM-free music — tracks without digital locks, which consumers can copy as much as they want, and play on any digital music player — will help the business out of its lengthy slide. Our central thesis:
- Most online music buyers don’t have a problem with DRM, because most of them buy their music from Apple’s store and play it on some combination of iTunes/iPod/iPhone (AAPL). Which means the common complaints about DRM — that, for instance, it prevents them from playing the music they bought on other brands of music players — never come up.
- Most online music consumers don’t have a problem with DRM, because they don’t buy music at all, but rip it from their CDs (or their friends’ CDs) or nab it from P2P filesharing networks. So they don’t deal with DRM, period.
That’s bad news for Amazon (AMZN), Napster (NAPS) and Rhapsody (NAPS), all of whom are attempting (or will be shortly) to distinguish themselves from Apple by selling only DRM-free music. And that’s bad news for the big music labels, which would love to have a real competitor to Apple, but who are instead stuck working with whatever conditions Steve Jobs wants. And dropping DRM isn’t enough to change that now.
But! The big labels are enjoying some real and tangible benefits by going DRM-free. Almost all of them have to do with the ability to experiment with new distribution techniques. For instance:
- In March, Warner Music Group (WMG) surprised fans by announcing that it would release a new album from Jack White’s Raconteurs side project within a week — and then allowed the band to sell MP3s directly from its own site.
- Gamers playing Take-Two Interactive’s (TTWO) Grand Theft Auto IV, released last month, can now buy songs they hear during the game, in MP3 format, via an integrated link to Amazon’s music store.
- MySpace (NWS) will launch a new store selling MP3 downloads from three of the four majors (EMI is not yet on board) this summer.
None of these initatives are revolutionary: At best, all of them amount to a relatively easy way to sample new music, legally, while providing a trickle of additional income to the labels. But by the music industry’s standards, these are big leaps.
In the past, DRM would have required the labels to make a call each time they wanted to experiment: Sell the music either in Apple’s format or Microsoft’s WMA format. And that would require buyers to make a call of their own: Do I want to listen to this song on my iPod, my PC, my Zune, etc? Or should I just pass on the whole thing? Now it’s a no-brainer — assuming they want to pay for music at all.
Had the industry initially moved to DRM-free sales after Napster 1.0, things might look a whole lot different: A large and varied assortment of digital music stores and digital music players, all of them compatible with each other. New startups, stores, etc wouldn’t automatically start out with a disadvantage because their offerings didn’t work with Apple’s. And Apple itself may not have the stranglehold it now enjoys. Too late for that now. But hopefully the music labels’ colleagues in Hollywood have been watching, and taking notes.
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