Apple and EMI: What Rights Are You Willing to Pay For?

Apple and EMI announced today that they would start selling higher-quality DRM-free music on iTunes at a price of $1.29 per track, 30 cents more than iTunes’s standard 99 cents price. This is an outgrowth of Steve Jobs’s Thoughts on Music (my post on that here). The press conference slides indicate that 84% of surveyed European consumers would like to be able to move their music files between devices and this will make that possible. This is an interesting expansion of the iTunes business model, and one that should further accelerate the death of the CD. The ease of use that people associate with music CDs is coming to iTunes.

This is not the first time that we have seen differently-priced licenses. In the Lexmark DMCA case, Lexmark was initially selling refillable cartridges at one price, and a second no-refills-allowed cartridge for $30 less. The cartridges were physically identical, but one came with more rights for more money. Customers, of course, figured that out, and the contracts were practically unenforceable. Faced with that failure, Lexmark added a lockout-chip to the cartridge in an effort to make the worthless paper contract more meaningful. (I describe this in more detail here.)

The new Apple and EMI offerings slice and dice the market. Before today, if you wanted to buy DRM-free music, you needed to buy CDs or online somewhere other than iTunes. Now users can now get DRM-free music from iTunes in two ways: the new way by paying an extra 30 cents for it, or the old way, buy the song for 99 cents and run it through some sort of DRM-stripping program. The fact that the legitimately DRM-free songs are of higher quality complicates matters, as there may be some people who would be delighted to strip the songs of DRM but who want the higher-quality songs.

iTunes has unbundled the album, and there is no doubt that part of the drop in CD sales reflects the fact that users are able to now buy the one or two songs per album that they really want. The new deal with EMI means that you can now buy DRM-free music through iTunes, and that should further accelerate the death of the CD. As to selling albums—bundles of music grouped together—that will depend on pricing, and iTunes is now offering a new way to buy the “rest” of the album.

How much are you willing to pay to have CD rights from iTunes?

Comments

[CJ]

The impact of this move is a bit overstated in the mainstream press, I think. Given that these new DRM-less offerings are still in Apple's AAC format, it won't be easy to get them onto other players because 1) no other players work directly with iTunes (so file transfers will have to be direct through the Windows OS or other software), and 2) few other players than the iPod itself (the Zune and a couple others) even play DRM-less AAC files. So, it won't be easy and as such, it may not widely-embraced--particularly given the higher price point.

[LAK]

Well it is still just 256Kps AAC. We're not talking lossless CD quality quite yet.

AAC is everywhere now. I'd be shocked to find a device that can't play an AAC track theses days or at least modified to play them. I know Microsoft Zune does and even my Sony phone plays them naitively (without having to install new software on it).

Still this ain't CD quality sound, and at least, ostensibly, other makers could play AACs if they want to. that is a step in the right direction.

Clearly, I'd still rather buy the CD and be able to listen to it in full CD quality (which, if you ask me or Neil Young, isn't that good either. SACDs and DVD-Audio are getting closer...) and rip it onto my hard drive at whatever compression I choose (I do 320Kps on my iTunes or with lossless compression)

Music is love. And love is free. so Music should be free too. Down with corporate teenaged brainwashing music. Up with art and performance and music for music's sake, not profit.

[LAK]

I should note too that iTunes allows you to convert your music from AAC to mp3 with just one more click, so DRM-less mp3s are available to you from the iTunes music store.

[Dean Wermer]

Not that it was intended to, but it's hard to see this altering the behavior of those now obtaining music on P2P networks, since they are not likely to embrace paying a 30% increase for DRM-free singles. It would be interesting to see any consumer studies that EMI did on this. I would have thought that consumer studies would have shown that (i) consumers vastly prefer singles over albums, and (ii) given the explosion in music available to consumers facilitated not only by the internet, but also by cheap recording technology that makes it easy for new bands to record, consumers would like to consume more music at a lower price. Since this addresses none of those preferences, the results of this experiment will be interesting.

[Behavioral Dork]

To Dean Wermer: one motive (among many) behind downloaders of music from P2P systems is the desire to be free of DRM. Apple's offering might alter behavior in this regard because Apple can generally promise something P2P networks can't: reduced search costs and reliable delivery. Apple's DRM-free offerings might be able to compete with P2P, especially where search costs are high and reliable delivery is low.

[kikkoman]

My view is that there is a small but vociferous segment (music enthusiasts who are also computer enthusiasts) of the iTunes CONSUMER population that hates DRM. But that is the wrong focus.

The majority of users simply use iTunes and the iPod and are oblivious about the higher quality DRM free music. My prediction is that given the price increase, this will not be as successful at the consumer level when the typical consumer can buy the same song with DRM protection at 99 cents and be perfectly happy.

The DRM-free effect may have much more of an effect on the entrepeneurship community (not the typical consumer) that wish to create and innovate in the digitla music space and are challenged by the inability to do so due to DRM restrictions.

If the "experiment" is unsuccessful at the consumer level because of the decision to price the DRM-free songs higher, I hope it will be realized that the DRM-free propositoin has much more to do with innovation and offering newed more exciting digital music services in the future and less to do with consumer adoption and their understanding and distinction of different music formats.