DRM-Free iTunes Brings Plaudits, Concerns

Published March 1, 2009

Apple Inc. has shaken up the online music world again with its announcement that iTunes would abandon digital rights management (DRM) and embrace variable pricing. The move by the world’s largest music retailer comes as federal regulators are giving DRM a closer look.

In exchange for offering DRM-free music, Apple will implement a new three-tiered pricing plan for songs instead of the 99 cents fixed price Apple has used almost exclusively since launching its digital music store in 2003.

For Apple customers, the move means the music they buy from iTunes will no longer be restricted to Apple devices such as iPods and iPhones.

New Price Structure

Apple, which surpassed Wal-Mart in 2008 as the world’s largest music retailer, has been selling songs published by EMI Group Ltd. and many independent labels without DRM since May 2007.

The Cupertino, California-based company will sell all music on iTunes, including the music catalogs of the other three major labels—Sony Music Entertainment, Universal Music Group, and Warner Music Group—without copy protection.

Under Apple’s new three-tier pricing plan, songs will cost 69 cents, 99 cents, or $1.29. The move will not affect movies or television shows sold on iTunes. The new price structure will take effect in April.

‘Death Rattle of DRM’

Apple won’t discuss its specific reasons for embracing variable pricing and abandoning DRM, other than saying the change is “great for customers.”

Critics of DRM welcomed Apple’s policy changes as much-needed concessions to the realities of the digital music marketplace and increasing competition.

“For music consumers, this isn’t as much a sea change as it is the death rattle of DRM,” said Jason Snell, vice president and editorial director of Macworld magazine. “DRM is an abject failure.”

“Apple’s switch to DRM-free is certainly a good thing for consumers in the short term,” said Bill Rosenblatt, president of New York-based GiantSteps Media Technology Strategies and proprietor of Copyright and Technology, a blog covering DRM issues. “It means that consumers will be able to shop for music downloads based on price.”

Mixed Blessing

Over the long term, however, Rosenblatt believes DRM’s demise will be a mixed blessing.

“When no one pays for music anymore, it will be harder for musicians to make a living,” Rosenblatt said in an e-mail interview.

U.S. CD sales declined 20 percent last year, but music sellers sold more than one billion songs online, up 27 percent over the previous year, according to Nielsen SoundScan, which tracks music sales throughout the United States and Canada. Apple boasts its customers have downloaded more than six billion songs since the iTunes Music Store opened six years ago.

Price Drops Predicted

Rosenblatt says DRM-free music could be bad for competition among online music services.

“It raises an expectation that consumers will always be able to get music in the same way,” Rosenblatt said. “This limits service providers’ ability to differentiate themselves based on the rights they offer to music at different price points, which is bad for competition.”

If everything is a high-quality, DRM-free, permanent download, the only thing music services can compete on is price, Rosenblatt said. “We’ll see pricing go to zero as more sites find ways to monetize the traffic other than by direct music sales,” he said.

That’s not necessarily good news for consumers, experts say, especially if it means fewer artists and therefore fewer musical options in the marketplace.

Concerns About Long Run

Observers are split on whether variable pricing is worth the tradeoff for DRM-free music.

“At this point I think it’s fine for Apple to loosen the rules so that the labels can make more judgments about how to price their products, while Apple still keeps enough control of the market to keep it running well,” said Snell.

But Rosenblatt is not so certain.

“In giving up DRM, [the record labels] are giving up the ability to differentiate on more than just pricing over time,” Rosenblatt said, noting how DRM can encourage innovation by using technology that helps preserve creators’ property rights. “I think this could hurt them in the long term.”

Ben Boychuk ([email protected]) writes from Rialto, California.