It’s often assumed that putting secret codes in music files to protect them from being copied is a way to prevent copyright infringement. But it’s not really about that at all. At heart, digital rights management (DRM) is a business strategy, not a police action. And that strategy may be reaching the end of its natural life.
The Wall Street Journal reports today that one of the major record companies, EMI, has launched an experiment in selling songs in unprotected MP3 format through Yahoo. The first songs are by popular balladeer Norah Jones and the Christian pop band Relient K. Senior EMI execs resisted the idea at first but “were ultimately persuaded there was a need to try fresh approaches to digital sales.”
And why were they persuaded? Because digital music sales, after growing strongly for a couple of years, appear to be losing steam this year. That, more than the particular EMI experiment, is the big news here. As the Journal reports, “The MP3 releases are coming as digital-music sales have stalled for the first time since Apple launched its iTunes Store in 2003. Digital track sales held steady at 137 million songs in the second and third quarters of this year, according to Nielsen SoundScan. That’s a slight drop from the 144 million sold in the first quarter.” Sales may jump up again in the current quarter, with holiday buying, but the writing’s on the wall: The existing model of digital music sales is losing momentum.
The existing model is, of course, the iTunes model. Apple’s iTunes store, which sells songs in a proprietary format that works only with iTunes software and iPod devices, is responsible for the vast majority of legal music downloads. Because it has the dominant music player, Apple has been able to call the shots up to now. It was the only company with the leverage to get people to start buying digital songs online, and to get that business going the record companies played along. They had little choice. But if sales of songs through iTunes stop growing, as seems to be happening, Apple loses a lot of its leverage.
The obvious alternative for music companies is to start selling songs as unprotected files, with MP3 being by far the most popular of the available formats. Selling them with other DRM protections would prevent them from being played on iPods, and if a song doesn’t play on an iPod its commercial prospects are, for the foreseeable future, limited.
But won’t selling songs as unprotected MP3s lead to rampant illegal copying? No. Because there’s already rampant illegal copying. Most unauthorized copying is done either through online file-sharing networks or by burning CDs for friends. DRM schemes have little effect on either of those. All new songs are immediately available on file-sharing networks, DRM or not. In fact, the Journal quotes one source as saying that the “pirate market … command[s] better than 90% of the online marketplace.” People buy through iTunes because they either don’t want to engage in illegal trading or can’t be bothered with the geeky aspects of illegal trading. It’s not because iTunes has removed the option of illegal trading. As for burning CDs to share, that remains easy even with DRM-protected songs.
No, DRM is about controlling the business model for selling online music. And if it looks like there won’t be much additional sales growth through iTunes, then music companies are going to start selling unprotected MP3s. In an iPod world, they have little choice.
Unless, of course, Apple starts allowing other kinds of DRM-protected song files to play on iPods. But even that unlikely event might not matter much. It would seem that the best business strategy for record companies at this point is to open the floodgates for online music retailing, which would almost certainly bring a burst of innovation in packaging and pricing.
UPDATE: Here’s more evidence that iTunes sales growth may have peaked.