Chances of DRM-free iTunes Store are low, says firm
Despite calls by Apple chief executive Steve Jobs for major record labels to drop their anti-piracy requirements for songs sold over online music stores, there is less than a 25 percent chance the labels will bite, says research and investment firm PiperJaffray.
In an open letter posted on Apple.com this Tuesday, Jobs responded to demands from European nations that Apple open its FairPlay DRM (Digital Rights Management) system that it uses to protect music downloaded on the iTunes store.
Essentially, Jobs absolved Apple of the criticism of a "closed" music system and redirect it toward the labels. He suggested those labels abolish DRM on downloaded music and that they license their music to Apple and other online stores without restrictions.
"In posting this letter Jobs is making a statement that Apple does not advocate DRM - it is the music companies that require its use," PiperJaffray analyst Gene Munster told clients in a research note on Wednesday. However, the analyst believes there is a "less than 25 percent chance" the music industry will take Jobs up on his calls and license music to online stores without DRM.
"Record labels have worked hard to protect their product from theft by negotiating DRM requirements, so despite Jobs' request, DRM free online music services are not likely to be the norm any time soon," he wrote.
Still, Munster said there remains an unlikely possibility that the labels will "call Apple's bluff" and agreed to sell music DRM free online, which he believes would be a positive for the company and its market-leading iPod+iTunes ecosystem.
"Consumers choose a device first and a music service second," the analyst told clients. "Apple is confident, justifiably given the iPod's leading market share, that increasing usage of online music services based on an open platform will sell more devices and most of those devices will be iPods."
In a DRM-free online music world, Munster notes that consumers may choose a service other than iTunes to download music but said that would be somewhat inconsequential to Apple if iPod sales increase.
"The reason for this is that iPods are significantly more profitable to Apple than iTunes; iPod (35 percent of sales) gross margins are in the 30 percent range while iTunes (5 percent of sales) gross margins are in the 5 percent-10 percent range," he wrote.
In an open letter posted on Apple.com this Tuesday, Jobs responded to demands from European nations that Apple open its FairPlay DRM (Digital Rights Management) system that it uses to protect music downloaded on the iTunes store.
Essentially, Jobs absolved Apple of the criticism of a "closed" music system and redirect it toward the labels. He suggested those labels abolish DRM on downloaded music and that they license their music to Apple and other online stores without restrictions.
"In posting this letter Jobs is making a statement that Apple does not advocate DRM - it is the music companies that require its use," PiperJaffray analyst Gene Munster told clients in a research note on Wednesday. However, the analyst believes there is a "less than 25 percent chance" the music industry will take Jobs up on his calls and license music to online stores without DRM.
"Record labels have worked hard to protect their product from theft by negotiating DRM requirements, so despite Jobs' request, DRM free online music services are not likely to be the norm any time soon," he wrote.
Still, Munster said there remains an unlikely possibility that the labels will "call Apple's bluff" and agreed to sell music DRM free online, which he believes would be a positive for the company and its market-leading iPod+iTunes ecosystem.
"Consumers choose a device first and a music service second," the analyst told clients. "Apple is confident, justifiably given the iPod's leading market share, that increasing usage of online music services based on an open platform will sell more devices and most of those devices will be iPods."
In a DRM-free online music world, Munster notes that consumers may choose a service other than iTunes to download music but said that would be somewhat inconsequential to Apple if iPod sales increase.
"The reason for this is that iPods are significantly more profitable to Apple than iTunes; iPod (35 percent of sales) gross margins are in the 30 percent range while iTunes (5 percent of sales) gross margins are in the 5 percent-10 percent range," he wrote.
Comments
agreed
I think the labels are about to come under some severe pressure over this.
Case 1:
I buy a lot of music. I then burn CDs for our cars. Neither car CD player knows anything about DRM, so standard mix CDs could be copied.
Case 2:
I buy the physical CD when I really want the printed contents. Standard CDs can, and have been since day one, copied everywhere on Earth.
Case 3:
Let's say that my wife buys a different player which can not work with iTunes. Is she screwed? Nope! Re-read the two cases above.
Hello! The recording industry gains nothing while pissing off those that keep them fed.
Thank you, Steve Jobs... the spotlight is now on the record companies, their paranoia, and their poor long range business sense. They should be smart enough to do the right thing -- it will cost them nothing!
Despite calls by Apple chief executive Steve Jobs for major record labels...
He wasn't telling them anything about what they must do. It was 1 of 3 possible paths how online music distribution could be handled.
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Despite calls by Apple chief executive Steve Jobs for major record labels to drop their anti-piracy requirements for songs sold over online music stores, there is less than a 25 percent chance the labels will bite, says research and investment firm PiperJaffray...
Then they won't be getting my money. Period. No more DRM in my iTunes Library.
Their responses this morning ("It's not good enough to say they have problems with suppliers and their hands are tied.") show they did not, or will not, understand the fundamental issue Jobs tried to address. Whether it's Apple, Microsoft, Sony, Wal-Mart, etc., DRM will be dictated by the record companies. Europe is putting their heads in the sand with these responses.
To say Apple must open its system to other players does not address the fundamental issue, that should anything happen to the DRM, all music is lost, regardless of where you bought it or how "open" the system is. DRM is the key issue. And Europe's paper tiger approach by muscling Apple is purely theatrics and will in the end benefit not a single European music consumer.
Personally, I do not buy anything on iTunes, since I want to make sure I can use it how I want to. If the DRM was removed, I'd buy all of my music there. I don't think that the record companies really appreciate how they are affecting the market.
I suspect you're not very representative of the typical customer/potential customer.
It's not like mobile phone usage "sky-rocketed" when number portability went into effect. The vast majority of people who want to buy music online are going to buy music online.
Most downloaders use iTS, most MP3 owners have iPods, and most are completely unaware of the concept or the limitation of DRM. You may be in a significant minority, but I think it's a very small one.
This is all about negotiations in Europe.
He wasn't telling them anything about what they must do. It was 1 of 3 possible paths how online music distribution could be handled.
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This is not true. Jobs mentioned all of the options and said Apple would not do one of them, out of the remaining two options one was their current solution. Why would Jobs write an open-letter about something he did not want to change?
Jobs is strongly stating he wants to sell DRM free music.
Vinea
He wasn't telling them anything about what they must do. It was 1 of 3 possible paths how online music distribution could be handled.
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What is your problem with "call"? "Call" has more valid uses than you are letting on.
unlikely possibility that the labels will "call Apple's bluff"
I actually don't believe that it was a bluff by Apple. Here's what I think is going on:
• Record labels want control back. They haven't been able to raise prices on iTunes songs and they have tried a couple of times to do that. Steve called them greedy and turned it down - even at the risk of losing the licensing rights to their music library.
• The record labels probably thought that Sony and Microsoft would wipe out Apple and then they would have "team players" who would surely do as they say - but that didn't happen, and since the Zune has been out and received less than stellar reviews - they know that Microsoft won't be able to do it.
• The record labels probably want to sell their own libraries via their own store - but how do they do that and make their songs play on the most popular player in the world? - They need to remove DRM.
• I think Steve knows they are probably conisdering this, and this open letter is a salvo saying - "Do it. We don't like DRM, we don't need no stinking DRM. We have the best player in the world."
Just my thought.
25%? Not 10%? Not 33%? Not 24.439844%? Mkay.
Vinea
No, none of the above.
It is 23.2%.
Chances of DRM-free iTunes Store are low, says firm
agreed
Actually three weeks ago at one of the largest music industry conferences of the year, in Canne, France, this was discussed and several music executives from major labels openly talked this htis probably will be coming...sooner than later.
Surely the chance of the labels reconsidering is slightly higher than 25-percent. In fact I'm inclined to side with Jobs on this one (obviously
I think the labels are about to come under some severe pressure over this.
Of course, everyone seems to look at this as a "CDs don't have DRM, so digital music shouldn't either!". Lest we forget, the record labels have viewed this in the past (and still, most likely, to this day) look at this as "Digital music has DRM, so CDs should too!". If they actually had any ability to create or replace CDs with DRM music discs, they would do it in a heartbeat.
Actually three weeks ago at one of the largest music industry conferences of the year, in Canne, France, this was discussed and several music executives from major labels openly talked this htis probably will be coming...sooner than later.
Do you have a link to a news article about this? This is something I'd like to show my friends and neighbors.
Of course, everyone seems to look at this as a "CDs don't have DRM, so digital music shouldn't either!". Lest we forget, the record labels have viewed this in the past (and still, most likely, to this day) look at this as "Digital music has DRM, so CDs should too!". If they actually had any ability to create or replace CDs with DRM music discs, they would do it in a heartbeat.
They could do this today, but they make far too much money selling CDs the way they are.
So far, it's all been about control. Before her departure from the RIAA, Hillary Rosen made several public statements saying that control is more important than profit. But you can't keep this attitude for too long. After a while, shareholders start saying "says who? we want profit." When that happens, progress will be made.
One interesting case study is the Baen Free Library. Baen, a publisher of sci-fi books, makes several titles available for free download - no DRM, no expiration, period. Everybody thought this was an incredibly stupid move, but a few authors decided to permit some of their works to be given away. So what happened? The authors made more money than before. People, after downloading one title, decide they like the author and buy the rest. Many times, they even buy the one they downloaded, preferring printed paper over a digital file.
I personally think the music and movie industries should learn from this. I'm not saying they should give away free songs (although I wouldn't object if they did), but that most customers are honest people and will make more purchases if they feel that they are being treated fairly by the companies they pay their money to.
It all seems so simple now...
I always grill my cousin for downloading ring tones on his phone and downloading music but ultimately he doesn't care because he doesn't want to spend the effort required to save himself money.
It's definetly the same with most itunes users. I doubt they've even ever though about drm when buying music.