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Steve Jobs beats the DRuM; EMI says ‘maybe’

February 9, 2007

Apple CEO Steve Jobs fired a warning shot at the major record labels this week, telling them in an open letter that the continued use of digital right management (DRM) on their MP3 products and CDs is stifling growth and sales.

CdlockedupHe also said that as soon as the labels are ready to let go of DRM, Apple will be ready to sell their music to the world through iTunes without Apple’s “Fairplay” DRM protection attached.

And there are reports today that EMI may be ready to let go of DRM on its online music products after a limited experiment a few months ago. Other labels were not as receptive, dismissing Jobs’ argument as “without logic and merit.”

In short: Jobs wants to “free” the music of the restrictive limitations for consumer, in-home use — even the restrictions that his own company applies as part of iTunes. And the un-DRM-ing of music by EMI would be the historic first blow that could start a revolutionary wave

Earlier this year, Apple announced that it would license its copy-protection scheme to accessory makers that wanted to allow iTunes users to stream music around their home and to other devices. But it looks like Apple is abandoning this direction to pursue more consumer-friendly approach of “free the music.” That’s a very positive step from the biggest seller of online music (2 billion songs served so far) and of MP3-playing devices (iPods).

Of course, the Recording Industry Association of America (RIAA) sees it differently.
They saw Jobs’ open letter and “agreed” that Apple should license its “Fairplay” DRM to other companies for use on their devices, so that the protection bubble isn’t popped from their products.

But that’s not what Jobs was saying. “Fairplay” has already been cracked several times, according to an Ars Technica story. And Jobs made the case that licensing the DRM system would open up Apple’s secrets to other companies, which will cause even more leaks and cracks to appear in the “Fairplay” protection dyke, making it worthless as a protection scheme.

Jobs sees the future clearly. He mentions that while two billion songs were sold to consumers last year online and on physical CDs, over 20 billion songs were illegally downloaded through peer-to-peer (P2P) networks online. He mentioned for the first time ever that only 22 of every 1,000 songs on an iPod player are DRMed. The rest either come from CD-based media purchased/borrowed by the user or from “other sources” that may or may not be illegal.

From Steve’s open letter:

Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.

Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system.

So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies.

So why is Jobs pushing so hard now for DRM-freedom? I see a few reasons, some not-so customer-oriented. A DRM-free iTunes Music Store would end the hassles Apple is facing in the European Union, which mostly considers the iPod/iTunes exclusivity to be an illegal monopoly, barring other MP3 players from using the service’s files. And DRM-free music would be a big “get” for iTunes, which is readying for a new influx of customers from Apple iPhone sales in July.

Looking at the negative press Windows Vista is getting for being so DRM-loaded, piling on restrictions for what you can do with your video and audio to appease the RIAA and MPAA, the Jobs letter can be viewed in a narrow prism as a PR move, to put Apple out there as the consumer-rights crusader. Good positioning by Apple if this is the case.

But the drumbeat (or DRuMbeat) won’t stop here. Jobs just lit the fire, and its ready to burn down the labels’ DRM house. Can the labels’ firefighters put out the flames? We’ll see in the upcoming months.

[UPDATE: Gizmodo’s view on the situation … they mention that Jobs plays the hero here, but what about video DRM?:

As Jobs said, most of the music on iPods comes from other sources. And even if the tracks aren’t wrapped up in DRM, who’s to say Apple’s going to unchain the iPod from the iTunes program altogether? If iTunes is selling the exact same non-DRM music another store is selling, why go to the other one when you have a perfectly good one integrated with your jukebox/iPod manager? If anything, this would solidify both the iPod and iTunes at the top because there’s no need to buy CDs anymore to get DRM-free music.

Finally, as Cult of Mac points out, Jobs says nothing about DRM for video. He can’t if he wants to distribute movies from anyone but Paramount or Disney. And the iPhone? A closed system. Apple’s not opening anything up anytime soon. It was nice hearing the words from the man himself, but we know DRM is here to stay. ]

[SECOND UPDATE: ZDNet looks at the record companies’ reaction to Jobs’ letter. Here’s a Q&A with Warner Music’s head, Edgar Bronfman:

Analyst to Bronfman: One thing that struck me as Mr. Jobs announced his willingness to drop music DRM is that negotiating leverage has begun to shift. I felt initially Apple had the upper hand in negotiations with music labels, given the impact on your business from piracy and the promise of digital growth he could provide, but now the sale of iPods and revenue from iTunes and soon his iPhone are beginning to dominate results for Apple, and perhaps now music has become as important or more important to his stock price than it is for yours. Do you have any thoughts on that?

Bronfman: “I do not think it is helpful to talk about whom has more leverage in a negotiation. What I feel is that the more that the music industry and Apple can work together, it seems sensible to do so for both industries. I think more dialog between the industry and Apple could only be a positive thing and frankly, manifestos in advance of those discussions I think are counter-productive.”

Wow… I smell smoke … this is going to be interesting … ]

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One Comment
  1. February 13, 2007 11:52 am

    If Jobs manages to persuade the record labels to drop DRM he’s still left with Apple’s adoption of AAC though if fairplay ceases to be an issue maybe more players aside from iPods will feature AAC playback. The open letter thing is a little inconvenient when Apple are seemingly close to getting the Beatles onto iTunes as Apple corp may still be needing certain assurances. Maybe we’ll see a slow creep of DRM-less contenet on iTunes though let’s face it, it wasn’t especially hard to defeat.

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