Apple To Sell DRM Music? Say It Ain’t So!

Today Apple announced something big. They will now be selling high quality DRM free music from EMI, on iTunes. You may scream with joy now, I’ll wait.

Done? Good. Here are the details:

• EMI is the studio involved
• $1.29 per track
• 256 kbps AAC DRM free
• for 30 cents users can upgrade their old songs from EMI to DRM free songs

This is quite an important event for both music lovers and Apple. There will be many side effects of this move that we will see in the near future. Here are some of my observations on the matter.

Freedom—How this is a boon for users
Looking at this from the consumer standpoint, this is almost a deal with no downsides (notice I said almost, but I’ll get to that in a sec). The biggest draw, of course, is the lack of DRM. Now you can play your music on any device and share it with anyone you want. And, if that wasn’t enough, this deal is retroactive, meaning you can upgrade all of your old songs if you just pay the difference in price. How sweet is that? Now, the second most important thing in this announcement is the higher quality of these DRM free songs. Now, personally I felt that the current quality was just fine (but I’m no audiophile); however, I am thrilled that we now have this higher standard. And the third most important aspect of this deal is that it puts pressure on rival studios to release their own DRM free music, which of course will be another win for consumers.

The only downside to this little freedom-fest is that these new songs cost more. Not substantially more (it’s only a 30% increase in price) but enough for you to notice the difference. Here is a fact for you: the only reason that these songs come with a higher bit-rate was so that Apple could justify the price increase. Because this deal would have been a lot harder to swallow if people were asked to pay 30 cents more just for the privilege of accessing their own music. But add in the higher quality and suddenly it feels like much more of a deal. Personally, I would be happy with keeping the price and the quality the same, but that’s me. I realize Apple can’t give consumers a choice in the matter because that would make using iTunes harder and not easier. In fact, the moment the last studio signs up, Apple will kill its DRM songs, returning once again to a single price point.

Lawsuits & Money—Why this is good for Apple
The first thing that came to my mind after reading this was something along the lines of “well, at least the French et al will finally get off Apple’s back now.” Yes, the immediate win is that they are speeding down the road to no more lawsuits in Europe. Now they can forget about the hassles of making their DRM work with others because they have no DRM anymore. Score one for Apple. After that knee-jerk reaction though, here are some more insights into what they might be thinking. I would be curious as to how that extra 30 cents is being divided. Does Apple get more money? Or does it all go to EMI? Because if Apple makes anything on this deal then it is a major coup for them. Because currently iTunes hovers around the break-even point in an attempt to drive iPod sales. And so far this has worked well for Apple, but I know they must find this frustrating at best. After all, this is a company with the highest margins in the industry operating a service that just barely breaks even. I think making iTunes profitable (and I mean really profitable) is a big item on Jobs’ To-Do list.

But don’t be fooled, this is bad news for consumers. That 99 cents mark was kind of like a magic line that no one wanted to cross. But suddenly the line has surged forward! Yes, the new price is $1.29 and I am quite surprised that they didn’t just bump it up further to $1.49. The reason this is bad is because it sets the precedent that songs are worth more than a buck. Now, I recognize that at some point in time the price would have to increase due to inflation and so keeping it at 99 cents wasn’t going to last forever. But I thought it would last a little longer than it did. My ultimate fear is that within 5 years the price will creep up again. And it will continue to increase slowly as we are given more incentives to pay a higher price.

For example, I can easily see the following happening. Let’s assume that in two years all of the music sold on iTunes is DRM free and it all costs $1.29 a track. Now, if Apple said that for only 10 cents more you could get 10 pieces of cover art with your song, would you buy it? After all, it’s only 10 cents more? And wouldn’t all that cool art look great flashing across your iPhone? So you decide to buy the song at $1.39 and soon enough all songs are that price. Then a little while later Apple announces that for just 10 cents more you can get the lyrics with that song. Isn’t that great? For only a dime extra you get lyrics! So now you don’t have to sing “there’s a bathroom on the right” (as opposed to “there’s a bad moon on the rise”). And soon enough all songs have lyrics. And at some point we will look back and realize that the price has crept up to $1.49 (or more) and we didn’t even notice. Yes we will be getting a higher quality product, but we are also paying more. And it’s been my experience that people don’t like to pay more than they have to. And that 99 cents price point was very attractive to a lot of people. But time will tell.

And, lets not forget that as the price of music increases it will naturally pave the way for price increases in video. Expect TV shows and movies to all get higher bit-rates and higher price tags. In fact, I expect this to happen within the next 6 months. Will it be worth it? Probably. But that doesn’t change the fact that we will be paying a lot more for our media in the coming years. But maybe that is the price of freedom. Either way, we shall see.

Other observations

• This makes the “squirt” feature on the Zune both useless and illegal. Good luck with that Microsoft.
• Independent artists now have no reason not to join iTunes in force. Expect a wave of new music to hit the charts soon. 
• This will eventually put a lot of pressure on the movie and TV studios to make their products DRM free as well.
• I expect that P2P networks will actually lose traffic once this goes into effect.
• The excitement from this press release will die down just in time for June’s developers event. I expect a very interesting “one more thing.”
• Expect iPod and iTunes updates soon to handle this new DRM issue.
• Microsoft will add this to the Zune marketplace by the summer.