Universal Music Group (UMG)
announced late yesterday that it will begin a series of experiments with
DRM-free Internet downloads through a variety of services -- with the very
notable exception of iTunes. It is licensing a relatively small selection
of content, across genres and from current hits to back catalog.
Pricing will nominally be US 99 cents but UMG expects to test various pricing
models in the coming months. UMG says that its DRM-free experiment will
end on January 31, 2008, after the holiday shopping season is over.
This effect of this major announcement can be summed up by saying that UMG is
doing now what EMI
should have done in the first place. UMG is both launching experiments
that are both carefully controlled and visible enough to be meaningful, and it
is taking bold steps to empower viable competitors to Apple. UMG's renegotiated
contract enables it to make these moves, which EMI may have been contractually
restricted from doing.
The major music companies generally consider Apple to be a monopolistic
player whose technology stack and restrictive pricing model hamper their
flexibility in the market. At this point in time, the only realistic way to combat
Apple's dominance is to offer DRM-free music through an existing major retailer with a huge,
global footprint. In other words, Amazon.
Amazon is indeed one of the retailers that UMG will license to, in addition
to RealNetworks (Rhapsody, for permanent downloads only) and Wal-Mart.
Three surprises on UMG's (nonexhaustive) list of retailers: the inclusion of
Google, which currently does not sell music, and the exclusion of both Microsoft
and Yahoo, which do.
With such relationships, unlike with Apple, UMG will finally be free to experiment
with pricing, bundling, and various other marketing strategies that can maximize
growth in its digital business. That's the main reason for this move; as
we have seen, the effect of DRM (when used with legal download services like
iTunes) on piracy is, as the lawyers like to say, de minimis.
UMG will continue to require DRM for subscription services such as those of
Rhapsody, Napster, and MTV's URGE, as well as for iTunes. It will also
require DRM for other business models, such as the ad-supported SpiralFrog --
which defied expectations of its premature death by starting a
beta test earlier this week.
Although the other two majors (Warner Music and SonyBMG Music) have not made
any announcements, they will surely follow in UMG's footsteps, if at a safe
distance after watching data from UMG's experiments. It remains to be seen
whether the majors use DRM for offers of permanent downloads at lower price
points, as well as to what extent they will stick with DRM in the emerging
over-the-air mobile market. Otherwise, it looks like the beginning of the
end of DRM for permanent paid Internet music downloads.
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