The first financial figures have been published that provide an indication of
EMI's success with its DRM-free content licensing strategy. EMI, Warner
Music Group (WMG), and Universal Music Group (UMG) have all released earnings
from the quarter ending June 30. EMI launched its DRM-free strategy on iTunes
(iTunes Plus) in late May, so the quarter's results include a "honeymoon" period
of about five weeks of press hype that should have temporarily boosted traffic
to iTunes Plus.
The results are not good news for EMI. Although
EMI's digital revenues
were up 26% over the same quarter last year,
WMG's comparable increase in digital revenues was 29%, and
UMG's was a staggering 49%. This is as close as possible to an
apples-to-apples comparison of digital growth among the majors, and iTunes
revenue is a first approximation to overall digital revenues. (Analogous
revenue figures are not publicly available for SonyBMG Music, the fourth major.)
As for the effect of DRM-free on content misuse: the online media measurement
firm BigChampagne has been keeping a close eye on EMI-owned content since the
DRM-free launch, and its CEO Eric Garland says that the effect on P2P traffic
has been statistically insignificant. He adds that there is little overlap
between people who purchase content on iTunes and people who upload files to P2P
networks like LimeWire, so therefore P2P piracy is not likely to be affected one way
or another by content protection methods used in the iTunes/iPod universe.
This means that the effect of DRM-free track availability on iTunes content misuse depends more on what users actually do with their files once they have purchased them -- use them on their own non-iPod devices, email them to friends, etc., factors that are much harder to measure and fall into longstanding gray areas of trust and fair use.
So, despite the company's claim that initial revenues from the DRM-free
iTunes Plus are "encouraging," these results show that the DRM-free
strategy is neutral at best. Digital revenue is growing at a slower pace than other
major music companies, indicating that with the higher prices for DRM-free tracks, the
increase in volume of purchases is slowing down; and there is no measurable effect on
piracy.
All this seems to mean that other major record labels need not bother
changing their DRM strategies, except perhaps as a public relations move.
Instead, in order to maximize digital revenues, they need better data on price
elasticity -- which they cannot currently get through iTunes.
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