Apple Leads Charge Into DRM-Free Tunes

Deal With EMI May Fortell Video's Future

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NEW YORK (AdAge.com) -- Apple has once again rocked the music industry, this time with its EMI deal to offer music without digital-rights management -- that is, without copying restrictions. Not only is that groundbreaking, it's difficult for the rest of the industry to ignore.
On Apple's iTunes store, DRM-free tracks from EMI will cost $1.29. Consumers can still opt for the restricted version for 99 cents.
On Apple's iTunes store, DRM-free tracks from EMI will cost $1.29. Consumers can still opt for the restricted version for 99 cents.

Price of freedom
"The pressure is huge. Now that EMI has done it, the other music studios will have to do it to," said analyst Rob Enderle. (EMI is one of the so-called Big Four record companies, along with Sony BMG, Warner and Universal.) "And it's probably a precursor to what will happen for video."

Eric Nicoli, CEO of EMI Group, appears glad to lead the charge, and said in a news release, "EMI and iTunes are once again teaming up to move the digital-music industry forward ... with no usage restrictions on the music they love from their favorite artists."

Of course, freedom comes with a price, and DRM-free iTunes will cost $1.29 a track. Consumers can still opt for the restricted versions for 99 cents. Previously purchased EMI can be upgraded to DRM-free versions by paying the extra 30 cents. Albums will remain the same price for either version.

A first
"This is the first time we've seen variable pricing [on iTunes]," said Russ Crupnik, analyst at NPD Group. "So today it's about paying more for file quality, but tomorrow will it be paying more for a No. 1 song? Will it open the door for more varied pricing schemes? That could be very interesting for consumers."

The DRM-free music will use an AAC encoding scheme, which in tech-talk means that music will still only play on machines that use AAC. Still, it does open up music transfers to devices from rival companies including Microsoft, with its Zune player, and Sony, with its digital Walkman products. Phones from Nokia, Motorola, and Palm also support AAC encoded music. The AAC encoded DRM-free music will also be a higher bit rate, which simply means better sound quality.

'More valuable'
"It makes the music purchased on iTunes more valuable," Mr. Enderle said. "With ripped music or pirated music, you could pretty much do anything you want with it, moving it anywhere. This allows them to argue [iTunes tracks] are just as valuable -- and more so, with the slightly higher quality."

The deal comes just two months after Apple CEO Steve Jobs issued a statement criticizing the music industry for stringent DRM policies and writing that his own company would embrace DRM-free music "wholeheartedly."

The move also coincides with hard times in the music-sales industry, with declining CD sales and digital-sales dilemmas. Nielsen Soundscan recently reported U.S. sales of CDs dropped 20% in the first quarter of 2007 vs. the previous year, although sales of digital-single tracks were up 19% during the same time period. It also comes as the broader and now much more mainstream group of iPod owners have become confused and more vocal, echoing music aficionados complaints about the limitations on digital music ownership.

More plans
Still, no matter what the music and tech industry response, Apple is forging ahead, with plans to "free" even more digital music on iTunes.

In a release announcing the EMI deal, Mr. Jobs said: "We think our customers are going to love this, and we expect to offer more than half of the songs on iTunes in DRM-free versions by the end of this year."
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