DRM’s Days are Numbered
In yesterday’s BusinessWeek it was announced that Sony BMG – the most stalwart defender of DRM-protected music – is “changing it’s tune” and will begin releasing music DRM-free. For the noobs out there, DRM is Digital Rights Management – essentially the strange format that your MP3s off iTunes and other sites come in, preventing you from moving them to other devices and preventing your friends from copying them. And for those who are sitting there saying “told you so,” – you’re not the only ones. TechCrunch’s Michael Arrington called this one over a year ago. His interview with Yahoo Music execs also predicted the rise of subscription services as an alternative.
According to the article, DRM music had the unintended result of giving much of the power to the distributor who controlled the device – Apple. If you wanted to put it on your iPod, you would have to go through iTunes to get legit music, and Apple wouldn’t license the iTunes DRM technology to let other people use it, so the user was forced to go to extreme measures to get their iTunes music onto any other device, creating lock-in.
According to the article:
Apple CEO Steve Jobs also refused repeated requests from the recording industry and iPod competitors to license its DRM technology so that iTunes customers could easily put their music on other devices, without first burning it to a CD or otherwise altering the files.”
Essentially, since iPods are so popular, and you need iTunes to get music onto an iPod, iTunes becomes the monopoly only distributor of music from all the labels, and then uses the DRM to create lock-in, and then refuses to license the technology, so no other MP3 player could use iTunes to get music onto its device, or at least play music downloaded off iTunes, which is good for Apple and bad for the consumer. Article goes on to say:
Other labels are hoping to create another Apple competitor in Amazon, which is willing to give the recording industry greater pricing flexibility. “That was a big part of it—countering Apple’s control in a positive way by creating more able competitors,” says Mike McGuire, a vice-president for research at Gartner (IT).
Narrowing Apple’s lead won’t be easy. Just ask Microsoft (MSFT), which has made meager headway with its Zune music player and online music store. Still, no service has yet been able to offer DRM-free music downloads from all four major labels. Amazon could yet become a contender.
So what does this all mean?
In the short run, the music download world will get more complicated and more sophisticated. The record labels were unhappy with iTunes because Apple forced the 99cents-per-track down their throat – they wanted variable pricing and premiums for established bands or new singles. Amazon – their new big-bet in distribution – is much more open to such variable pricing. Meaning you may end up paying more for Justin Timberlake’s new single, but perhaps less for Rod Stewart’s first album ever. Furthering the complexity – not all songs will go DRM-free right away. You may have some songs and some labels that chose to stick with DRM music for years to come. Finally, subscription services like Rhapsody will have to decide – now that the record industry isn’t forcing them to put DRM on their music, can they afford to open up? Or is the subscription business-model dependent upon the music evaporating when the user stops paying to “rent” it every month? The annuity-based subscription model is a good thing for large companies, who can bank on the predictable revenue stream. Services like Zune Marketplace – which offers a hybrid of both subscription & purchase will also have to chose sides, or risk creating so much complexity in their marketplace that users are overwhelmed.
In the long run, this is good for consumers, good for Apple’s competitors, bad for Apple, and unknown for labels and artists, but change is never easy.
Users: Once the majority of the libraries of all the major lables switch to DRM-free, you will be able to take your music with you – on any device. DRM-free music will erode Apple’s strangehold on music by opening up their closed system. If someone makes a better device than the iPod, you’ll be able to buy it without worrying that you’ll have to re-buy all your music on this new music service. You’ll be able to chose the service and the device that work for you.
Labels: From the record label’s point of view, this is all very new. There is no way to know if this new business model will work for them – they might have to go into entirely new markets to survive.
Artists: There has been a lot written in the past 5 years about the changes in the music industry and in technology, which are bringing the means of production (as The Long Tail’s Chris Anderson would say) into the hands of the artists. The internet also means that the means of distribution are also within the grasp of the artists themselves – just look at MySpace – which started as a way for artists to connect with their fans & promote shows. Or look at companies like TuneCore.com which work as aggregators to help indie musicians get listed and sell their songs on iTunes. Essentially, DRM could be bad for artists because there will once again be nothing stopping users from swapping songs rather than paying for them. However as labels themselves move into new markets, the distribution of music could become just a way of creating fans, and the revenue generation could come from other places like advertising, concerts, and merchandising.
Visions for the Future
The music industry is in flux. Madonna recently signed with LiveNation – traditionally known more as a concert promoter – as her new label – abandoning Warner Music Group. By singing with a company that is much more about the execution – concerts, ticketing, merchandising, distribution – she is essentially cutting-out-the-middleman. LiveNation – on the other hand – has a very different business-model, one that subsists on merchandising and concerts – a business that may be seen as more sustainable in the long-term, if record-sales continue to decline. According to an MSNBC article:
Live Nation CEO Michael Rapino said in the statement that Madonna will be the founding artist in its new Artist Nation division, created to partner with musicians to manage their diverse rights and provide global distribution and marketing.
“I am thrilled that Madonna, who is also now a shareholder in our company, has joined with us to create a new business model for our industry,” Rapino said. “Bringing all the varied elements of Madonna’s stunning music career into the Artist Nation and Live Nation family, moves her future and the future of our company into a unique and extraordinary place.”
Indeed, they are usurping the traditional labels, even as the labels themselves look for a new business model. I wouldn’t be surprised if we saw labels like Sony BMG & Warner Music Group begin snapping up other concert promoters like LiveNation, or LiveNation itself, in an attempt to morph into new business models as record sales continue to plummet. Or perhaps they will begin snapping up online radio stations, or both. Merchandising drives LiveNation, and Advertising drives Radio & Internet Radio, and both mediums look to be the future revenue channels for this industry. We’ll just have to wait and see what happens next.