[2 April 2007]
SAN FRANCISCO - EMI Group said Monday it will reverse strategy and begin offering its entire digital music catalog without anti-piracy software on Apple Inc’s iTunes Store - making it the first major music label to scrap such restrictions on downloaded music.
The London-based music company said songs without the software, known as digital rights management, or DRM, will also offer higher audio quality, though they will come at a higher price. All other online music retailers will also be free to offer the new tracks, EMI added.
Scrapping DRM will give customers more choice by allowing them to listen to music on any player. It also means that consumers who buy music from the iTunes store will no longer be restricted to using Apple’s popular iPod music player.
“Most consumers think DRM is a huge mess, so this kind of simplicity should go over real well,” said Neil Strother, an analyst at Jupiter Research.
The DRM issue has come to a head after months of public and private debate, including an open letter to music executives from Apple CEO Steve Jobs, arguing that DRM had not been successful in curbing music piracy.
In that letter, Jobs pointed to sales of CDs, which still account for 90 percent of all music sold and do not have anti-piracy software. EMI’s move is simply bringing digital music into line with CDs and other formats, he said.
EMI chief executive Eric Nicoli said the demand for DRM-free music was widespread. In a recent trial, the higher quality, DRM-free tracks outsold the standard tracks by 10 to 1, he noted.
“This doesn’t in any way diminish our commitment to fighting piracy in all its forms,” Nicoli added.
The deal applies to popular EMI bands such as Coldplay, Gorillaz and the Beastie Boys, but not to the music of The Beatles, which has never been available to download legally.
Ahead of the announcement, several press reports speculated EMI was set to announce The Beatles’ catalogue would be made available online for the first time. But Nicoli would only say that the publisher is still working on a deal and hopes the songs will be available soon.
Apple’s iTunes Store will make the new tracks available in May at a cost of $1.29 a song. It will also continue to sell the original tracks that include anti-piracy software for 99 cents, their current price.
Customers who have already bought tracks containing DRM software will be able to upgrade their music collection for 30 cents a track.
At a joint press conference, Jobs hailed the move from EMI as “the next big step in the digital music revolution.”
Jobs forecast other publishers will follow suit, saying he expects half of the five million tracks on iTunes to be available without DRM by the end of the year.
“Starting today, Apple will reach out to all the other major and independent labels to give them the same opportunity,” Jobs said.
Other music publishers have been less keen to embrace DRM-free music, claiming it is needed to prevent copying. Among other publishers, Warner Music Group has been one of those opposed to the idea of removing the technology.
Evan Wilson of Pacific Crest Securities predicted that rival publishers will wait to see how EMI’s sales turn out before making changes of their own.
“If they (EMI) see a revenue increase in the face of an overall decline in music sales, the other labels will have to look at it. They’re shareholders will force them to look at it,” Wilson said in an interview.
In a report to clients last week, Wilson noted that digital music has not yet been able to obtain the same level of interoperability as CDs - which can be played in home stereos, cars, PCs and portable devices.
Apple and Microsoft use different types of DRM technology - one reason that music downloaded from iTunes can’t be played directly on a player using Microsoft’s Windows Player software.
“We think that people using peer-to-peer networks to illegally download music are already doing so, so DRM only puts restrictions on paying customers,’ Wilson said.
Rival online music services from Yahoo Inc., RealNetworks Inc. and Napster currently use DRM software based on Windows Media technology from Microsoft.
Those downloaded songs can be used on players using Windows Media but not on iPods - which account for the vast majority of digital music players sold.
Michael Olson of Piper Jaffray said in a report Monday that EMI’s move will have a small benefit for both Real and Napster, both of whom see the majority of their digital music revenue through subscription-based services, which are expected to continue using DRM software.
“If other labels follow EMI and offer DRM free music, we would expect an acceleration of consumer adoption of legitimate online music services,” Olson wrote.
Ian Rogers, general manager for Yahoo Music, noted that his company has been pushing to open the DRM standards since last year. He would not comment, however, on whether Yahoo would begin offering EMI’s songs free of the copyright protection.
“We were pretty emboldened when Jobs joined the chorus a couple months ago,” Rogers said. “We’re all about trying to reduce the friction for people buying music online.”
A spokesman for Warner would not comment directly on the move by EMI on Monday, but pointed to comments made to analysts by CEO Edgar Bronfman Jr. in the company’s last earnings conference call on Feb. 8, in which he described DRM technology as “a key element” in the digital distribution of music and other digital content.
“There is no reason to conclude that music is the one content category that should not or cannot be protected, simply because there is an unprotected legacy product available in the physical world,” Bronfman said at the time.