April 2, 2007
Three implications of DRM-free iTunes
Lest it be completely overshadowed by news of Brussels’s antitrust charges against Apple (subscription link), here are three implications of today’s deal between Apple and EMI to offer DRM-free downloads from iTunes.
1. This deal moves Apple to the forefront of interoperability. With today’s announcement, the burden of making music interoperable with different devices will now fall on big music companies, and not on Apple. Steve Jobs appears to have spiked the guns of European consumer groups who have been targeting Apple, arguing that its closed iTunes system is unfairly ties consumers to the company’s iPod music player.
2. The pricing of DRM-free songs on iTunes could drive album sales. While higher-quality DRM-free songs will cost about 30 cents more per download under the Apple-EMI agreement, our understanding is that this premium does not apply to entire albums. The narrower price gap between singles and entire albums should help drive album sales - an ‘upsell’ that the music industry has been trying to encourage. Any pickup in album sales would be particularly beneficial to EMI, which is financially the weakest of the big music groups.
3. Apple isn’t out of the woods yet. Today’s antitrust charges allege that Apple and big record companies have engaged in anticompetitive practices by prohibiting users in one EU country from downloading music from an iTunes store intended to serve another country. The charges indicate that, mistakenly or not, Europe is willing to take on what it perceives as iTunes’s unhealthy grip on the digital download market on multiple fronts.
