Brian's Brain

Back on March 16^th, I wrote and submitted a print editorial proposal (which I'm reproducing in its entirety below) that was critical of Steve Jobs' earlier Thoughts on Music missive. As you'll soon see, I saw Thoughts on Music as being nothing more than a clever PR smokescreen intended to redirect government and consumer rights agencies' DRM (digital rights management) criticism away from Apple's FairPlay stance and towards the major record labels, who I believed would never drop DRM. And, as you now know from this morning's announcement from EMI (covered, among other places, at Ars Technica, Boing Boing, Daring Fireball and Slashdot), I was wrong. At least in one case.

I'm glad I was wrong....delighted I was wrong....because if EMI's move is replicated by other record labels (particularly by the remaining members of the Big Four), the digital multimedia ecosystem of ICs, software, and systems will flourish. I say multimedia, not just audio, because conceptually there's no reason why a movie studio couldn't follow EMI's music-centric lead with a similarly DRM-dumping approach.

I'm frankly flabbergasted at EMI's decision....I don't know how the company plans to make it economically feasible. I suppose EMI's accountants decided that the increased revenue and profit upside of DRM-free content more than counterbalanced the increased potential-for-piracy downside, perhaps pragmatically guided by the reality that piracy from CD rips is already widespread. And on the piracy note, I wouldn't be surprised if we later find out that Apple and EMI are implementing customer-specific file watermarking, so that illegally shared content can be tracked back to its distribution source. I'm equally flabbergasted that Apple's agreeing to drop FairPlay on EMI-sourced material; the company must feel that its formidable iPod hardware market share lead is sustainable even without a sustained DRM lock.

Some other thoughts on today's EMI news:

• The increased per-track price ($1.29, versus $0.99 for the DRM-inclusive tracks that EMI and Apple will continue to sell) counterbalances the revenue-draining piracy factor. However, EMI is also providing increased value, both by eliminating the usage-restricting DRM and by doubling the tracks' bitrates from 128 Kbps to 256 Kbps (regardless of whether or not the average listener will be able to discern the difference). Arguably, part of that incremental 30 cents per track also covers the incremental storage and distribution bandwidth costs of the larger file payloads.
• The ability for consumers to upgrade their already-purchased iTunes tracks to DRM-free, higher-bitrate versions for an incremental 30 cents per track is a nice touch on Apple's part, and should lead to a nice up-tick of both iTunes Store and iPod (since owners' current iPods will only hold half the music they used to) sales.
• Note that DRM-free albums are equivalently priced to their DRM-inclusive predecessors. The fiscal hit to the record labels caused by digital-era consumers buying only a track-or-two worth of an album's music is well documented. Both today's pricing move and last week's 'Complete Your Album' announcement show how desperate the labels are to sustain a semblance of their prior revenue stream.
• While Apple no longer has a DRM lock on these higher-priced tracks, it still has format and sync software locks, albeit more tenuous ones. Only a small subset of portable audio players and other electronics gear handles the industry-standard AAC format (the AAC-cognizant list notably includes both Microsoft's Zune and Xbox 360, and Sony's PSP but not the PS3). I'm going to resist any temptation to knock Apple and EMI on their decision to go with AAC versus the more pervasive MP3 format, because the newer AAC is a higher quality codec than its predecessor at a given bitrate. However, I'm not holding my breath on Apple supporting other manufacturers' portable players within iTunes, unless the company receives significant fiscal incentive to do so or has its hand forced by the threat of government sanction.
• I still believe that the subscription music rental model offers compelling value. However, other music sales merchants are going to be forced to match Apple's move on EMI content (something that's likely to happen, given that today's announcement explicitly describes Apple as the first, not the only, online music merchant who'll gain access to EMI's DRM-free portfolio), as well as with content from other record labels that follow EMI's lead.
• I doubt any of the other major labels will match EMI's move any time soon. EMI is the smallest of the Big Four, with only about 10% market share, and in the shakiest financial shape. One might interpret EMI's announcement as a bit of a desperation decision, in fact.
• The Beatles catalog (which is managed by EMI) is still not available for sale or rent on the iTunes Store, or anywhere else.
• Finally, I wonder how much money Apple threw at EMI to make this deal happen. With that said, any pennies spent now, sparing courtroom and marketplace dollars lost in the future, represent a smart move on Apple's part.

Continue reading with 'Apple's Steve Jobs: Not The Commander in Chaff (At Least This Time)'....