SonyBMG followed suit with a similar announcement today, a week after making a much more limited announcement about a few dozen albums it will distribute as physical cards in retail stores that contain codes for downloading MP3s from a special website.  Amazon will offer SonyBMG MP3s starting later this month.

The primary impetus for this move is a strategic attempt to destabilize Apple's dominant market position in the industry.  Neither WMG or SonyBMG are (to our knowledge) giving up DRM on iTunes, as only EMI (among the majors) has to date.  All four majors -- plus thousands of indie labels -- are putting wood behind the Amazon arrowhead against Apple.  This is clearly the music industry's best hope at creating real competition in the online music retail market, and early indications are that Amazon's MP3 sales are doing quite well.

Meanwhile, Napster announced last week that it will be moving to MP3s only for its download sales sometime in the second quarter of 2008.  Last Friday's announcement gave no indication of which labels will support this move, but the announcement did suggest that Napster will not sell encrypted files anymore.  It will still use DRM (Windows Media DRM) for its core subscription service. 

Napster's primary competitor, RealNetworks' Rhapsody, has been offering MP3s for sale for the past several months, but alongside DRM-protected tracks.  Napster was clearly betting that all four majors will make their entire catalogs available without DRM -- at least to Napster -- by mid-year.  That now appears highly likely and may even happen sooner.  When it does, then the market will have settled on a combination of monthly on-demand subscriptions with DRM and DRM-free permanent paid downloads in MP3.

Apple will soon have to decide whether to keep iTunes as it is and continue to rely on the popularity of iPods, or to join in the subscription market.  Subscription services like Rhapsody and Napster currently suffer from a combination of lack of iPod interoperability and glitches in compatibility with Windows Media-based portable players.  Apple may have an opportunity to leap to the top of this market by offering a seamless combination of subscription and portable device transfer.  Starting next week, when Apple is expected to launch an online movie rental service, we should be able to get insight into whether or how it can upgrade its FairPlay DRM to handle time-based content rights management.

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