Monday, April 02, 2007

DRM becoming the "D" Word

I listened to the live stream of the Apple/EMI news conference this morning from London.

The good news:

• Apple will be providing the option of premium priced EMI material DRM free and at double the bit rate for higher quality - 256 kbps AAC encoding.
• Any tunes already bought from iTunes can be upgraded for USD $0.30.
• Steve Jobs hopes that other majors will soon follow suit.

The bad news:

• The bad news is that these premium singles will cost 30% more.

I don’t know how many times I heard Jobs and EMI Group CEO Eric Nicoli refer to “DRM Free” music. It seems that DRM is becoming the “D” word - even in the highest corporate musical circles.

Interestingly, Jobs himself kept repeating that DRMs can already be stripped form iTunes songs by making a CD copy - which lots of folks know. This is a “hassle” as he calls it - but not an insurmountable one. It will disappear now - but for a price.

Jobs also explicitly mentioned the SONY root kit episode as an example of how DRM doesn't work.

Nicoli conceded that file sharing might become easier now. The implication here is that any losses due to increased private copying due to file sharing will be more than capitalized into the purchase price of the download. It will, of course, be difficult to separate out what relative premium consumers notionally allocate to the two improvements - i.e. “DRM free”, and higher fidelity. It remains to be seen what the take up will be.

All of this goes against the suggestion by Sandy Pearlman and others of lowering the price to a nickel or some other attractive price point and thereby increasing unit quantity sold by a far greater factor than the lowering of the price - in other words far greater revenue for the record companies and artists. Remember, the marginal cost of delivering a tune online is or will be very close to zero. Many of the costs associated with traditional sales of vinyl and CDs have simply vanished - i.e. manufacturing, distribution, shipping, inventory, accounting, etc. Consumers have yet to see this dividend.

So greater revenues = greater profits. In direct proportion. It could be that simple.

It’s Economics 100 time.

At the right price point and with friendly online music stores, unauthorized downloading and file sharing would all but disappear - and all without the need for increasingly draconian, technologically harmful and interventionist copyright laws.

So - today’s announcement might be seen as the right move technologically but in the wrong direction on cost. Hopefully, the latter will get corrected before it’s too late.

And where are the Beatles? Both Jobs and Nicoli said they too wanted to know.

And therein lies much of the problem in the music industry today - at least to this old curmudgeon’s ears. We have nobody of the quality of the Beatles, Elvis, or Frank Sinatra - or even the Stones or early Michael Jackson - who can sell multi-platinum simply by virtue of compelling quality.

The majors are left with a few vaguely OK current “stars” that offer passing entertainment, lots of ambition, and “MUCH” mediocrity. And it does take a lot of marketing hype to convince lots of people to pay for this music. But there is not a lot of music that people really want to buy in great quantities just because it’s irresistibly great music that crosses over a vast range of categories.

There’s also the matter of intense competition with other new forms of entertainment, including video games, DVDs, etc., etc. that drain budgets very quickly.

One thing ought to be clear, if anything. Suing customers into submission mostly certainly isn’t the answer. It’ll be interesting to see if EMI achieves enlightenment on that front.


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