Apple, Amazon may hold future of DRM-free music

Sales of unprotected music at retailers could help determine whether record industry adopts open MP3s.
Written by Greg Sandoval, Contributor
Critics of digital rights management have long insisted that record labels could boost sagging sales by offering music unencumbered by copy-protection schemes.

Apple's iTunes and e-tailer Amazon.com are in position to test this hypothesis in the coming months. On Wednesday, Amazon announced that it plans to sell digital songs from record label EMI Group that will be DRM-free. Amazon's unprotected music, which will be sold from the retailer's upcoming download store, can be played on a wide variety of portable music players, including Apple's iPod and Microsoft's Zune. Amazon's announcement follows one last month from Apple, which is also due to begin selling unprotected music from EMI.

The music industry-- struggling with one of its worst-ever sales slumps--will be closely watching how Amazon and Apple fare. If they are successful in moving a lot of songs, then that might convince the other three major record companies to strip DRM from their music. If sales are lackluster, then that might spur the labels to wrap songs in even tighter copy protection, say industry insiders.

"DRM is the only thing that has given the industry any kind of control," said one record executive, who requested anonymity.

David Card, an analyst with JupiterResearch, said it's going to be hard for Amazon and Apple to prove anything by selling music from only one of the four major labels.

"Amazon is a strong endorsement for this (unprotected music) strategy," Card said. "The question of whether it's enough to tilt the tables away from DRM remains to be seen. The sales would have to be huge to bring the others on board."

Representatives from Warner Music Group, Universal Music Group and Sony BMG declined to comment.

Sales of traditional CDs are in a free fall. The industry reported a 17 percent decline in album sales so far this year. Ipsos Insight, a Chicago-based market research firm, issued a report recently that showed a 15 percent drop from 2002 in the number of U.S. consumers who had bought a CD within the past six months. The music industry is waiting for music downloads to make up these losses, but that hasn't happened yet.

The question of whether DRM-free music will appeal enough to consumers to make them pay for it may be answered by music fans like Elise Malmberg and her husband, Joe Gore.

The San Francisco couple are musicians, music critics and owners of more than 500GB of music. The couple listens to songs on iPods and other devices.

"DRM is kind of a moot conversation," said Malmberg, who bought her last CD from Amazon in December. "The record labels are trying to control something that's totally out of their control. People can access songs now regardless of DRM. It doesn't help."

If the price is right ...
Gore and Malmberg rip most of the songs they listen from albums and load it on to their iPods. While the pair does buy some music from iTunes, they don't tolerate Apple's copy-protection software.

"We know a way to convert everything into regular MP3s," Malmberg said. "We can then move them around to any device we want. It's ridiculous for them to say I can listen to songs only on the players they say I can."

Amazon and Apple could end up frustrating consumers, many of whom have long resented having to figure out what music formats and DRM schemes are compatible with the many music players available, said Susan Kevorkian an analyst with IDC.

"By offering both DRM-protected music and songs without, these retailers are adding another level of complexity," Kevorkian said.

Nonetheless, Malmberg, 44, and Gore, 48, said they would absolutely buy unprotected music from Amazon as long as the retailer's new site is simple to use and sells songs at the right price.

Look for other retailers, including Wal-Mart, to offer DRM-free music, said music-industry sources. Amy Colella, a Walmart.com spokeswoman said the company has yet to decide its next move.

"We know digital music interoperability is important to our customers and continue to evaluate these types of opportunities," Colella said.

Jeanne Meyer, a spokeswoman for EMI, declined to identify which retailers would next begin offering unprotected music. "We're out talking to everyone," she said.

If EMI is able to stir up interest in DRM-free music among retailers (Apple is responsible for 80 percent of all music downloads), it may help push other labels to at least try it out, according to industry insiders.

One executive from one of EMI's rival labels said that the fear among DRM proponents within the record industry is that the labels could be "swept up" into copy-free music should it take off with retailers.

They may be right to tread lightly here. Not even Malmberg is convinced that offering consumers a way to listen to music on multiple devices is the way to cure what ails the record industry. She said that too many consumers have gotten use to paying little or nothing for songs.

"Ultimately I don't think digital music will be a primary product," Malmberg said. "I think it will be a value-added thing that's used to sell other products."

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