The Apple-EMI deal: DRM-Free = Premium?

By now, most of you out there have heard about the deal between Apple and EMI. Apple announced earlier this week that it plans to sell DRM-free music from EMI, one of the big four major labels, through iTunes.

No one will question that this a big deal. For years, the RIAA and the major labels have insisted that Digital Rights Management was an absolute necessity for selling music online, even though there was zero evidence that this sort of copy protection ever did more than treat paying customers like criminals. The fact that any of the major labels agreed to this is a pretty big step.

It's only one step, though, and the way this step was taken leaves me, like the boys at Engadget, just a bit cynical.

For starters, this move shouldn't absolve the RIAA and its labels of shady business tactics. EMI is not rushing to leave that organization, which still thinks suing music fans is a worthwhile business practice. I'm pretty sure those labels have no plans to work with podcasters like me anytime soon, either.

Moreover, we should look at the way this deal benefits Apple. Steve Jobs spent years telling the RIAA labels that he wasn't going to raise the price of music sold through iTunes. Singles would stay at $0.99. This deal changes that. DRM-free tracks are now $1.29. Surely, this was a concession Jobs had to make to convince EMI to do the deal. The labels get to charge more, Jobs appeases the EU antitrust probe by showing that Apple is making inroads toward removing DRM, listeners get better audio quality, and everyone makes more money.

Except, of course, the EMI artists themselves. If they're lucky, they'll get an extra penny per sale. This is why signing with a major label is a bad idea.

Of course, if you're an indie label or unsigned artist, selling DRM-free music through iTunes seems like a great idea. However, the way Jobs set up this deal, it would appear that the only way for an indie artist to sell DRM-free tracks is to sell “premium” tracks. You'll still have 128 Kbps AAC files wrapped in DRM for $0.99, but you'll also have 256 Kbps AAC files with no DRM for $1.29. This is sure to be a standard for all artists selling through iTunes.

I have a really problem with the idea that “DRM-free” is equal to “premium.” After all, eMusic sells DRM-free music for about $0.33 a song. The only reason Apple is doing it this way is to appease the big labels that want to charge more per song. That's all part of the deal, though. If you want to sell DRM-free music, you'll have to charge listeners $1.29 per song. You'll also have to sell music in AAC format. If you want MP3, you'll have to go through eMusic.

Here's one more thing that nobody's really talking about. These premium downloads will be twice as big as the regular iTunes downloads. Suddenly, that old 20GB iPod and that 2GB iPod nano don't seem quite so spacious, do they? Surely, iPod lovers will want to upgrade to newer models with a lot more storage space for these larger files. Apple probably has a slew of 40GB iPods and 8GB nanos in the pipeline just for this…

Anyway, the real question now is how soon Apple will allow indie labels or artists who got into the iTunes Music Store through CD Baby, Tunecore or The Orchard to sell DRM-free music. Sure, independent artists have other ways of selling DRM-free music, but none of them are as dominant in the marketplace as iTunes. Apple has done a pretty decent job of letting the indies play in their sandbox in the past. They ought to be allowed to play now, too.


The Apple-EMI deal: DRM-Free = Premium? — 7 Comments

  1. In this case, Apple loves all you FUD-spreaders, because you are obscuring the big rip-off.

    Everyone was complaining that DRM locked iTune shoppers into the iPod ecosystem. Now, Apple is providing a way out. Ransom your files for $0.30 each. You want to dump your iPod and upgrade to Zune. Just pay Apple $0.30 for each file you want to set free.

  2. You were a lot more reasonable than those crazy cats at Engadget, but still, alas, wrong. We should not be worrying about the $1.29 “premium”. If DRM-free music becomes commonplace, competition will increase and market pressures will ultimately drive prices down, not up. If it takes a short term sweetening of the pot for the labels to put their toes in … so be it. Once they see that the DRM-free tracks will sell better and that piracy will basically stay at the same level (because it’s always been easy to pirate, so nothing has changed), the will jump in with both feet and will suddenly be willing to compete on price.

    Where you *really* get it wrong is on the iPod capacity thing. I’ve read this so many times in the last 24 hours. Do any of you “capacity down by 1/2” people actually USE iTunes? Conversion to 128K is only a click away, and I know plenty of iPod users who already do this. In fact you are far better off with the 256K file, because now you have a multipurpose file: hi-fi or convert to portable. With a 128K file there is only one purpose, and there is no such thing as upconversion (or at least, it won’t sound any better if you try).

    And that’s the one point that destroys your “premium” argument. Any audiophile will tell you that 256K is WORTH 30% more than 128K. Hell, it’s worth twice as much. Therefore it is totally inaccurate to call it a ‘DRM premium’.

  3. DBL: When exactly have the RIAA labels ever competed on price? When they promised that CD prices would drop once manufacturing became cheaper? These people have complained for years that Apple was undercutting them by charging 99 cents per song. They have always wanted you to spend more for their music. If anything, I expect the prices to go up, not down.

    If he wanted to, Steve Jobs could sell DRM-free songs for 99 cents each, but he won’t, because doing it this way appeases the big labels and is better for Apple’s bottom line. Tying DRM-free to higher-quality audio also gives Apple an extra marketing tool to convert all those audiophiles to iTunes, meaning more iPod sales. The more I look at it, the more I can respect its shrewdness as a business move.

    And no, I didn’t know about the downconversion trick, but I suspect I’m like 90% of iTunes users in that regard, so this still increases the demand for higher-capacity iPods, thus keeping Apple’s bread and butter going.

    I still wonder how this will affect the indie artists and labels, though. Will they be able to sell DRM-free music through iTunes like EMI, and if so, will they be forced to sell it for $1.29 per song? Judging from past history, I’m guessing yes on both counts, and if that’s the case, we’ll all end up paying more for music in the long run.

    Now if the major labels want to start selling their catalogs to eMusic, that would be a sea change, but I’m not holding my breath waiting for that to happen anytime soon.

  4. This reference to past behaviour by RIAA was a good counterpoint, Dave, but I think it overlooks the massive levelling effect created by digital distribution. The power of the RIAA to set terms has been contingent on their ability to erect barriers. Now that they are being forced (by market conditions with a little friendly shove from Jobs — and it’s important that he stay friendly to them because you can’t influence your enemies) in my view this is bound to change.

    Whether indie artists can choose to charge less on iTunes or not, once DRM-free interoperation becomes the standard, you have a situation where BOTH the restricted access to widespread CD distribution AND the digital file movement barriers are gone, and this is a whole different world. Anything that happens elsewhere on the web can happen very easily, and indie artists will be able to affect the marketplace more than they ever could. This is why the RIAA has resisted this for so long — they wanted a way to teleport their control mechanisms into the digital world. The problem has never been their settings of high prices its been how difficult it was both to present and acquire interoperable alternatives.

    Why not publish a few tracks of your music as free podcast? Then you can get it into iTunes through the backdoor, and lure people to your website where they can buy your album cheap. (Or you can sell your album as ‘album-only’ on iTunes — which is now DRM-free and high quality without a premium — and invite people to your site to get cheap individual tracks — this would be an effective form of protest against the $1.29 without abandoning iTunes altogether.)

    The point is — their bulwark against invaders is full of holes now, and any creative person can find a way in. This is just another hole — it’s a good thing. But Apple is not going to do the work for every little artist nor are they going to specifically champion the indies against the majors (besides leaving you these openings that it’s your prerogative to take) — because if they did, then they would soon make the wrong enemies and lose their ability to effective even more change that will open up even more holes for you to waltz through.

    When a person or organisation is bridging a gap between two extremes, it is always easy to criticise them from either side — but these people are essential to a reconciliation and a better industry!

  5. It is a good taste to say that DRM is a bad thing. But people buy it and will buy. They have no alternative? In case with majors it is right. But why do they go to itunes for indies? And not to emusic for DRM-free mp3 or e.g. where they can buy DRM free lossless. RIAA is the reason? No. They want to get anything at one place. And nothing will change unless the smaller players at the market have enough money to give huge advanced payments to labels. And itunes will be itunes with DRM or without it, with 0,99 or 1,59 per song.

  6. nos: That’s one reason why I promote eMusic. I play indie music, and I think it’s great that eMusic sells DRM-free indie music at such a reasonable price.

    That said, a good chunk of the music I play isn’t available from eMusic. Karmacoda’s new CD isn’t there yet. Raul Ramirez’ second disc isn’t there yet. But they’re both on iTunes. Plus, more than 90% of the Dave’s Lounge audience gets this show through iTunes, so much of my audience naturally gravitates to that program.

    I’ve gotten plenty of emails from people who don’t like eMusic’s subscription model and would prefer to pay per song, too, and for better or worse (mostly better, IMHO) iTunes is very open to selling indie music.

    Of course, a few bands have told me that they actually earn more money from eMusic than from iTunes — which is interesting, since eMusic tracks sell for much less on average — but it’s nice to have the option to go either way.

    And I freely admit that I choose many of the stores I promote because of their affiliate programs. eMusic, iTunes, CD Baby and Amazon actually pay me when someone clicks through my site and buys something. It’s not very much — certainly not as much as what the artists themselves make — but it pays for the LibSyn bill and other podcast-related expenses. Right now, I’m just happy to get people in the habit of buying the music they hear on this show, because that’s how we build a new music business.

  7. Actually, I agree most strongly with the complaint that DRM-free files suddenly must also be high-quality, and therefore bigger, though the proverbial powers that be are shooting themselves in the foot. How physically large and expensive was a 10 Gig iPod in 2002? How big is it now? We’ll be carrying terrabyte sized players in no time and we won’t care that the high quality files are bigger, unless there’s a sudden quality ‘arms race’.

    I’ve also considered notions like, if your music is virtually given away free, how should an artist make money off them? How about premium 5.1 Surround recordings? Those will be too big for portables and pointless, since they’re just headsets, but… it’s a notion, and don’t be shocked if more folks try it. After all, that’s what SACD and DVD-Audio discs are.

    There’s a cheap humor in No-DRM being marketted to the audiophile set.

    Best wishes and good show