February 15, 2019

EMI To Sell DRM-Free Music

EMI, the world’s third largest record company, announced yesterday that it will sell its music without DRM (copy protection) on Apple’s iTunes Music Store. Songs will be available in two formats: the original DRMed format for the original $0.99 price, or a higher-fidelity DRM-free format for $1.29.

This is a huge step forward for EMI and the industry. Given the consumer demand for DRM-free music, and the inability of DRM to stop infringement, it was only a matter of time before the industry made this move. But there was considerable reluctance to take the first step, partly because a generation of industry executives had backed DRM-based strategies. The industry orthodoxy has been that DRM (a) reduces infringement a lot, and (b) doesn’t lower customer demand much. But EMI must disbelieve at least one of these two propositions; if not, its new strategy is irrational. (If removing DRM increases piracy a lot but doesn’t create many new customers, then it will cost EMI money.) Now that EMI has broken the ice, the migration to DRM-free music can proceed, to the ultimate benefit of record companies and law-abiding customers alike.

Still, it’s interesting how EMI and Apple decided to do this. The simple step would have been to sell only DRM-free music, at the familiar $0.99 price point, or perhaps at a higher price point. Instead, the companies chose to offer two versions, and to bundle DRM-freedom with higher fidelity, with a differentiated price 30% above the still-available original.

Why bundle higher fidelity with DRM-freedom? It seems unlikely that the customers who want higher fidelity are the same ones who want DRM-freedom. (Cory Doctorow argues that customers who want one are probably less likely to want the other.) Given the importance of the DRM issue to the industry, you’d think they would want good data on customer preferences, such as how many customers will pay thirty cents more to get DRM-freedom. By bundling DRM-freedom with another feature, the new offering will obscure that experiment.

Another possibility is that it’s Apple that wants to obscure the experiment. Apple has taken heat from European antitrust authorities for using DRM to lock customers in to the iTunes/iPod product line; the Euro-authorities would like Apple to open its system. If DRM-free tracks cost thirty cents extra, Apple would in effect be selling freedom from lockin for thirty cents a song – not something Apple wants to do while trying to convince the authorities that lockin isn’t a real problem. By bundling the lockin-freedom with something else (higher fidelity) Apple might obscure the fact that it is charging a premium for lockin-free music.

One effect of selling DRM-free music will be to increase the market for complementary products that make other (lawful) uses of music. Examples include non-Apple music players, jukebox software, collaborative recommendation systems, and so on. (DRM frustrates the use of such complements.) Complements will multiply and improve, which over time will make DRM-free music even more attractive to consumers. This process will take some time, so the full benefits of the new strategy to EMI won’t be evident immediately. Even if the switch to DRM-free music is only a break-even proposition of EMI in the short run, it will look better and better in the long run as complements create customer value, some of which will be capturable by EMI through higher prices or increased sales.

The growth of complements will also increase other companies’ incentives to sell DRM-free music. And each company that switches to DRM-free sales will only intensify this effect, boosting complements more and making DRM-free sales even more attractive to the remaining holdout companies. Expect a kind of tipping effect among the major record companies. This may not happen immediately, but over time it seems pretty much inevitable.

In the meantime, EMI will look like the most customer-friendly and tech-savvy major record company.

Comments

  1. Matthew says:

    Now what we need to do is go buy _legal_ copies of all that EMI music many of us have to show support for their new efforts. It would be awesome if EMI execs who have stuck their necks out over this got some firepower to help them take the heat they’re surely getting inside their own company.

  2. “If removing DRM increases piracy a lot but doesn’t create many new customers, then it will cost EMI money.”

    I do not understand the logic of the sentence above. Surely one extra customer is a net gain. In fact, since EMI charges more for the DRM-free versions, they could even lose a few customers and have a net gain. The amount of piracy is irrelevant.

  3. Note that the increase is only for tracks — album prices are the same (although they didn’t talk about free upgrades for those of us who have purchased albums:-)

    No one is interested in running clean experiments at this point (trust me) — it is all about marketing and, in the case of EMI, trying to save their own bacon. There have been some private experiments that have been done (I’ve conducted a few) and there are signals that a fair percentage of those who are currently paying for digital tracks will pay a premium. There is also a clear signal that most of those who aren’t used to paying for music tracks won’t pay for drm-free tracks. So selling this internally means having to cover a certain amount of “leakage” ..

    A more interesting experiment will be to see how many of the indies choose to sign up with the drm-free option (it apparently will be offered to them)

    Ultimately this is a very good thing.

    Any bets on how the others move? Any bets on Microsoft’s position?

    and then there is the issue of video — sigh…

  4. I say support the experiment and honor the license. I doubt there is anything in this agreement that says it can’t be undone if it fails.

  5. Other thoughts:

    1. The non-technical world that barely knows what DRM will associate non-DRM’d music with a higher sound quality.

    2. By doubling the quality of their music, iTunes also doubles the size, so half as many songs fit on the same hard drive. This leads to a demand for larger (next-gen) iPods.

  6. Another motivation for the change could be EMI’s desire to get Apple to move away from flat pricing. The record companies desperately want to charge higher prices for popular songs and lower prices for catalog songs. Apple has always resisted this move and insisted on a flat $0.99/song.

    I’m well aware of the fallacy of slippery slope arguments, but this is the first time there will be differential pricing of individual iTunes tracks (complete albums already have differential pricing). Perhaps EMI thinks this can open the door to more pricing flexibility in the future.

  7. Tony Lauck says:

    I won’t be buying from the Itunes store until the music I like (generally classical) is available with no DRM at full CD quality. In addition, the selections will need to be clearly labeled as meeting these requirements.

    Most classical music, particularly orchestral music, requires the full resolution of CD quality, and in some cases would benefit from even more resolution. Why would one pay iTunes $16 dollars for an album with less than CD quality, when a CD can be obtained from amazon.com for roughly the same price?

    DRM would not just be an inconvenience. It would be unusable with my existing hardware setup. I have an audio workstation that can not run anti-virus software due to latency requirements, so this machine must be kept isolated from the Internet.

    I note that the Philadelphia Orchestra is selling many of their recent and historic concerts on-line with full CD quality (FLAC encoded) and no DRM. I have purchased many of their recordings, including all nine Beethoven symphonies. Perhaps the future is for direct sales by the Artists, bypassing the labels completely.

  8. Ron Thigpen says:

    One additional theory as to why EMI/Apple chose to bundle higher quality with portability: cost justification.

    Chatter around the industry in the days following the Jobs open letter held that one major music corp (thought to be EMI) was shopping around the idea of DRM-free downloads. Excitement ruled, but was tempered when follow-up reports held that the company was asking for unreasonably large up-front payments in return.

    When I read the substance of this week’s release, my first thought was that the price had to be raised in order to meet EMI’s revenue demands. I suspect Apple was able to convince EMI to drop the up-front demand in exchange for larger on-going payments. For this to work, and Apple not to lose revenue, they needed to charge more per track. My guess is that the higher bit rate encoding is simply a value-add to the customer that helps to justify the higher price point.

    Related Points:

    Competition on Quality: Disregarding the reality distortion field surrounding the perceived qualities of music encoded with AAC, I’d say the timing was about right for Apple to raise the quality of the lossy encodings they’re selling. Competitor eMusic has been selling 320kpbs VBR MP3s for a couple of years now. The MP3 codec at that rate is going to preserve a lot more information than an 128kpbs CBR AAC encoding. Apple had a lot of mindshare around the quality of it’s offering when the iTMS debuted, but had really kept up with times and was risking obsolescence.

    Technical Indifference (filesize): I’m guessing that the higher quality EMI AAC encodings will be 256kbps VBR, while iTMS standard encoding has been (currently is?) 128 CBR. Variable Bit Rate encodings analyze each frame of audio data and compress at the lowest rate that it estimates will be needed to preserve a perceived quality level when uncompressed. The stated VBR bitrate number is actually a maximum bitrate at which the most complex and hard to compress frames will be encoded. In practice only a small percentage of frames are compressed at this highest bitrate. The result of this is that the resulting filesize of a high bitrate VBR encoding may not be much, if any, larger than a low bitrate CBR encoding of the same material. So, EMI’s DRM-free, higher quality files may not be much larger than the DRM’d, lower quality files and therefore not result in higher bandwidth and storage expense for the iTMS operation. In any case these costs should be a small part of the provider’s expense. In other words, it’s cheap to provide, so why not?

    Technical Indifference (encoding) + Marketing Message: These higher quality files will have to be re-encoded from lossless source material. The cost of doing so will be the same regardless of the encoding settings chosen. The choice for VBR is a slam dunk, but perhaps difficult to explain to the public. The choice of a higher bitrate is also obvious, especially given the efficiency of VBR, and very easy to explain to the public. 256 is 128 TWICE. Never mind that twice the bitrate does not equate to twice the quality, as if such a thing was measurable. And, yes, I’ve seen much press coverage with exclamations such as this (from PC Magazine):

    “Apple will sell individual tracks from EMI artists at twice the sound quality of existing downloads, with DRM removed, at a price of $1.29.”

  9. V: “The non-technical world that barely knows what DRM will associate non-DRM’d music with a higher sound quality.”

    Excellent thinking (whether factually true or not). At the end of the day, marketing always trumps technical considerations.

    “By doubling the quality of their music, iTunes also doubles the size, so half as many songs fit on the same hard drive. This leads to a demand for larger (next-gen) iPods.”

    While kind of plausible at face value, nah, I don’t think so. But then I’m a close-to-40 old fart, so for how much does my opinion count anyway.

  10. Tony Lauck: “Perhaps the future is for direct sales by the Artists, bypassing the labels completely.”

    Even then, I imagine it will go through some kind of “aggregator” sales channel. But that may as well take the form of an “internet portal” or search engine linking the the artist’s or artist-syndicate’s website, who knows. The overhead of administering the sales infrastructure may not be a killer, but it can be substantial when operated at scale.

  11. One can even imagine some kind of “music ebay” — from the perspective of infrastructure, not (necessarily) sales of used stuff or bootlegs.

  12. Again feedback is focused on the customer or Industry, it’s clear nobody here is an artist trying sell his/her music.

    One touched on it: indie artist. The only tangible item is the song, now you tell me I have to GIVE IT AWAY, because you the consumer want it for FREE.
    and if you decide to SHARE it with your P2Ps I’m suppose to say thank you.

    Read the notice, their dropping DRM an giving you better quality at a higher price. Your the same people that got excited when the phone companies afford you FREE phone calls.

    DRM is to protect the Right(s) of the Artist for the business of making money from their efforts. Period. Why don’t you work on getting FREE
    Gasoline for your CAR

  13. John,

    Nobody here is saying that you can’t sell songs. Quite the contrary — we’re telling you that if you offer your songs for sale in DRM-free format, we’ll pay more for them. EMI clearly thinks it will sell more music this way, not less.

    The assertion that DRM prevents P2P infringement is by now thoroughly discredited. All the DRMed songs on iTunes were already on the P2P darknet. Technology doesn’t prevent copying of music. So why not serve the majority who are willing to pay, by offering them the product they really want?

  14. Wil Oxford says:

    …just a few random thoughts that popped into my head…

    It seems to me that the perspective of the content producer (as opposed to the publisher, btw) as espoused by Mr. Feeney earlier, is often ignored in this discussion, but both sides of the system should be considered in the whole debate.

    Although the likes and dislikes of the consumer will ultimately decide how successful an artist is (since they are, in effect, paying the salary of the producer, even if indirectly), the consumer is equally dependent on the available pool of artists for the material that they wish to consume. If no-one can afford to spend the years that it takes to become a world-class artist because they are not able to make a living as such, then as consumers, we probably end up with a pretty unappealing set of choices. Are we there yet? I’d hazzard a guess that there are people who would argue both sides of that question.

    Back to the topic at hand, though. DRM systems are, in some sense, like the locks on the front doors of your house. Any lock can absolutely be defeated (especially if you leave the key under the mat), but I have to ask what is really the major deterrent to ubiquitous burglary? I very well may be wrong, but I would like to believe that the threat of getting caught and doing time in jail is not the biggest deterrent to break-ins (or any other crime). I would suspect that the vast majority of people would simply not choose to break into someone elses’ house to steal unless they had no other option in order to survive. Especially if the necessities of life were close to universally available at a reasonable price. So, it seems to me that fair pricing would be the most potent weapon in the DRM arsenal. Note that this does not take into account the pathological behavior of a few individuals whose motivations are not reason-based, but I can only hope that these individuals are in the minority. I have no real statistical data on which to base that line of reasoning, though, so I am not claiming anything other than personal opinion here…

    If you take this argument on face value, though, then it’s funny how this whole issue of economic survival is the very same motivating factor as mentioned above for the producer-class. If the artist can afford to survive as a content producer, then they will choose to do so, since that is where they would prefer to be in the first place. If even the most talented and accomplished artists cannot afford to survive as such, then the content pool will suffer and consumers will be left to fight over mediocre quality material at best. Content that nobody wants to pay too much for in the first place, I might add.

    So where does that leave us? Again, if you believe my argument as outlined above (and I would not take it on faith if I were you; I have personally spent a whole. 10 minutes coming up with this chain of reasoning :-), then what we are looking for is an equilibrium between the price of content and the quality of that same content. In a sense, sort of what eBay does for those of us that choose to participate in that distribution channel… but, of course, that sysem is not perfect either.

    Finally, I have also ignored the role of DRM in this fantasy world where content producers are rewarded in fair proportion to the quality of their output. While I think that some form of DRM does, actually have a place in this “utopian” system, none of the DRM systems that I have seen, at least so far, seem to address the needs of anyone other than the content producers/distributors.

    Speaking from the perspective of the artist (as Mr. Feeney so bravely did), I LIKE having a lock on the front door of my house and I don’t think that anyone here would begrudge me the freedom to choose to install one. However, I also would argue that I want to have a lock that is user-friendly enough that it doesn’t take 15 minutes from the time that someone rings my doorbell before I can let them in to visit.

    As a home owner, I also don’t want to have to depend on a single source for that lock; I should be able to choose how and from whom I get that technology (with the same market forces at work as above). If nobody makes anything that suits my needs, then I should also be free to make my own (or to decide not install any security).

    I could keep going, but I have already rambled on way too long and I’m probably dead wrong on all counts anyway…

  15. Some Random Poster says:

    The main difference between DRM and a lock on your front door is that DRM, unlike your house lock, needs to be unlockable by the exact same people who should not be able to unlock it. If this sounds controdictory, that’s because it is. It’s as if you wanted anyone to be able to go into your house, without you being around, but you didn’t want them to be able to take anything out of the house… It’d be a pretty amazing lock that could do that.

    Hope this is informative…

  16. DRM isn’t like YOU getting to have a lock on the front door of YOUR house. It’s like SOMEONE ELSE having a lock on the front door of YOUR house. And they can decide when and under what conditions you can enter your own residence.

    In fact, it’s like the construction company (not the architect, nor the homeowner) having the keys to the lock on the front door of your house, and using this to extort money or otherwise make things miserable for you. Maybe giving a thin dime to the architect now and again, and saying the whole point of the system is to ensure architects get paid…

    And if it’s 9 PM, raining, and you want to get inside and crawl into bed, and they’ve misplaced the key or aren’t answering their phone, well, it’s just too bad, you get to sleep in the street tonight. Tough luck. Oh, and some EULA notice tacked on your front door the day you moved in somehow is automatically “agreed to” by your moving in, was not negotiable, and gives the key holder blanket immunity from your loved ones suing him for leaving you to shiver yourself to death that night.

    OK, access to your music collection isn’t quite as crucial as having a roof over your head, but the way things are going (DRM on ink cartridges and car parts, mandating hardware encryption that the owners of machines won’t control but the government or MS or some industry cartel will, etc.) it might not be too long before that actually happens. Of course, the EULA will ratchet tighter every so often … a new one’s on your door when you get home from work. “By continuing to reside here you agree to our updated terms and conditions. You hereby waive your fourth amendment rights and permit our network of affiliates and law enforcement officers free entry and inspection of your home, and the right to leave objects within…” Of course, inside the place has ALREADY been redecorated in Early Modern Billboard by some “network of affiliates” and the little stash of marijuana under the toilet seat is gone, with a parking-ticket like note there instead ordering you to pay three hundred bucks for the privilege of losing it…Next day your porn has obviously been watched and some of your food eaten, and a dance-mix CD removed for unspecified reasons…your tools are “borrowed” under some fine-print clause letting them use and return residents’ things without compensation…your own alarm system has been modified to not alert you if they invade, but to track your own usage and alert them if you do anything they don’t like, or the government doesn’t like…

    Our property rights are being taken away from us and rented back to us in anemic, worthless forms. A stop must be put to it, now.

    http://www.dklevine.com/general/intellectual/against.htm