[17 May 2007]
Chicago Tribune (MCT)
CHICAGO - Like Steve Jobs of Apple Inc. before him, Jeff Bezos is attempting to force a revolution on how consumers listen to and purchase digital music.
Bezos, the chief executive of Amazon.com, said Wednesday that his online store will add digital music downloads to its offerings. It will include a big caveat likely to please consumers: Amazon will sell the tunes with no copy protection.
That means Amazon-bought songs can play on any portable device, ranging from Apple’s market-leading iPod to Microsoft Corp.‘s new Zune. Consumers can legally use, copy and share that music any way they please, a boon to music fans who have been confused by the limits that buying digital music have placed on them.
The biggest advantage to dumping copy protection on music files is that consumers who buy music online will b able to move those tunes to an iPod, a mobile phone or a computer without any restrictions. For example, right now someone who buys songs from iTunes can’t put that music on a Zune.
“We’ve been patiently and diligently looking to have a music download experience our customers would want,” said Bill Carr, vice president of digital media at Amazon. “And DRM has been a big hindrance to that.”
DRM stands for digital rights management, a software protection scheme that has been a staple of the digital music files sold at Apple Inc.‘s iTunes store since it’s inception in 2003. Indeed, the major labels wouldn’t agree to sell songs on iTunes without the copy protection.
But that’s changing, thanks in part to EMI Music Group’s willingness to sell digital music without DRM software. Joining EMI at Amazon will be thousands of smaller labels and independent artists selling songs without copy protection. Many of them already do sell DRM-free songs at MySpace.com or eMusic.com, the Internet’s No. 2 digital music store.
Later this month, Apple will begin selling DRM-free songs from EMI, and CEO Jobs has said that by the end of 2007 he expects half the music available at iTunes will be sold without copy protection.
The strategy shift from EMI combined with Amazon’s market muscle and Apple’s ongoing influence could lead to a host of changes in digital downloads.
For one, by announcing an online music store in May that isn’t expected to open until sometime before the Christmas holiday season, Amazon is hoping other major labels will join EMI in dropping DRM restrictions.
“It could pave the way for other people to come on board before we can launch the service,” Carr said. “I’m sure we will add (labels) to the store before then. The only specific company we’re calling out today is EMI, but we’re in discussions with everyone we’re in business with for selling CDs.”
Amazon has been selling CDs since 1998 and it has more than 1 million titles available, Carr said. “We are the largest CD retailer online in the world. We’re a significant partner with every major player.”
The second development could be a shake-up on how digital singles and albums are priced.
“Amazon knows how to sell music,” said David Card, who covers the music industry as a senior analyst with Jupiter Research. “We’ll see pretty aggressive prices, a variety of prices.
“They could go lower than 99 cents” for singles, which has pretty much become the industry standard Apple has set at iTunes. It’s difficult to make much money lower than that, but Amazon is very good at upselling,” Card said. “I think they will do well.”
Amazon did not disclose its pricing strategy but it is likely the online retailer will offer consumers incentives to try the service. For example, a shopper looking for a digital music player may be offered a coupon or a gift card to use at the music store.
EMI said earlier this year it will begin selling digital music songs without DRM restrictions from its artists, which include David Bowie, Coldplay, Gorillaz, the Rolling Stones and Lily Allen, among many others.
The iTunes store will be the first retailer to offer the songs, expected sometime this month. Those songs will sell for $1.29 each, not 99 cents, because they will be offered as a higher quality download, comparable to what consumers buy on a compact disc.
But the price for a digital album with the higher quality will be the same as one with copy protection, said Jeanne Meyer, a spokesperson for EMI. That move is an effort to jump-start album download sales, which have suffered as consumers have largely purchased singles from iTunes.
David Pakman, chief executive officer for eMusic, believes that more DRM-free music will be good for the market.
“We’re happy to see that the market is breaking our way,” he said, noting that eMusic has always sold music without copy protection. And while eMusic doesn’t have an agreement with EMI, he said “we remain optimistic that we will have some of the majors (on eMusic) one day.”
He believes at least one more major will start selling DRM-free songs this year, or “at least portions of their catalog, and maybe two more (labels) by next year.”
According to the Associated Press, executives at Warner Music Group, Vivendi’s Universal Music Group and Sony BMG Music Entertainment, a joint venture of Sony Corp. and Bertelsmann AG, declined to comment about their strategies.
“There’s a lot of resistance” from the other labels, said Card, the Jupiter analyst.
Jobs has been the most influential critic against DRM this year. In February, he released an essay titled “Thoughts on Music,” in which he wrote that Apple would “wholeheartedly” embrace a DRM-free marketplace.
“Imagine a world where every online store sells DRM-free music encoded in open licensable formats,” Jobs wrote. “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.”
Scott Kessler, an analyst at Standard & Poor, said DRM-free songs will be very good for Apple.
“We think (Apple) would actually benefit from the continuing momentum towards premium digital content without copy protections,” he wrote in a report to reiterate his strong buy opinion on Apple shares. They fell $1.84 on Wednesday to close at $107.52. Shares of Amazon rose $2.64, or more than 4 percent, to $63.22, toward the high end of the company’s stock price over the past year.
Card said that “Apple has nothing to lose by getting rid of DRM restrictions. People are still going to buy iPods. They may even buy more.”
Indeed, the top five selling portable music players at Amazon on Wednesday were all flavors of the iPod, Amazon’s Carr said.
“We sell a lot of iPods.”