Sony BMG to Drop DRM

From Catherine Holahan, BusinessWeek:

In a move that would mark the end of a digital music era, Sony BMG Music Entertainment is finalizing plans to sell songs without the copyright protection software that has long restricted the use of music downloaded from the Internet, BusinessWeek.com has learned. Sony BMG, a joint venture of Sony and Bertelsmann, will make at least part of its collection available without so-called digital rights management, or DRM, software some time in the first quarter, according to people familiar with the matter.

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DRM-Free Won't Save The Music Business

From Peter Kafka, Silicon Valley Insider:

• We don't think most consumers are aware of any DRM restrictions, because almost everything they buy or own works on iTunes and iPods.


• We have yet to see any concrete numbers from either EMI or Universal Music Group about their DRM-free tracks sold at iTunes and Amazon's new mp3 store. We've been told, unofficially, that sales are "encouraging," but we think if they were truly impressive, we'd have seen the results already.


• The conventional wisdom is that if only consumers had legal opportunities to buy music online, they would do so instead of using P2P filesharing systems, or borrowing and ripping their friends' CDs etc. But there's no shortage of legal places to buy music online these days, and consumers are indeed buying songs: They bought 1 billion tracks at iTunes in the first half of this year, and we assume that rate increased this fall. But the industry's main problem remains unchanged: It used to sell discs at a wholesale price of $10; now it sells individual songs at a wholesale of about 70 cents. If the business is going to survive, it's going to have to figure out a way to do that profitably -- and dropping DRM isn't going to solve that problem.

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Related:

No Good Download Goes Unpunished

Nielson: DRM-Free Tracks Do Not Increase Overall Sales

A Tipping Point For MP3s

From Ed Christman, Billboard:

The scope of a yearlong download promotion planned between Pepsi and Amazon, Billboard has learned, is among several developments forcing further consideration by Warner Music Group (WMG) and Sony BMG Music Entertainment to follow EMI and Universal Music Group's lead in distributing music in the MP3 format.

News of the Pepsi promotion, which is expected to be announced Feb. 3 during the Super Bowl, coincides with an ultimatum from Wal-Mart asking major labels to supply walmart.com with their music in MP3, sources say. Labels, meanwhile, say they have been watching the success of an MP3 test UMG began in August; the major continues to allow the sale of 85% of its current catalog as MP3s. Sources say UMG is on the verge of permanently embracing that digital format. But a source close to the testing insists the decision is still up in the air while the company awaits conclusive results from the trial, which are due in mid-January.

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Average Briton Buys Less Than One Digital Track Per Year

From Andrew Edgecliffe-Johnson, Financial Times:

Retailers are urging the music industry to drop piracy protection for online downloads after new figures showed the average Briton has bought fewer than three digital tracks in the past three years.

Incompatible proprietary technologies, aimed at defeating rampant piracy in the digital music era, are instead “stifling growth and working against the consumer interest”, said Kim Bayley, director-general of the Entertainment Retailers Association (ERA).

Her warning comes as high street retailers and digital music specialists watch pre-Christmas sales trends nervously. The music industry makes at least 40 per cent of its revenues in the fourth quarter, but the traditional sales build-up has started later than usual.

Although Leona Lewis – the X Factor winner backed by Simon Cowell’s Syco label – this month notched up the highest first-week album sales for a debut artist, album volumes are down 11 per cent, or 12m units, for the year to date, according to the Official UK Charts Company and Music Week.

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Nielson SoundScan Data: DRM-Free Tracks Do Not Increase Overall Sales

From Troy Wolverton, Mercury News:

In the end, the long battle by the record labels against unrestricted digital music may have been little more than sound and fury signifying nothing.

At least, that's how it's starting to appear now that two of the major labels in recent months have embraced in some fashion the MP3 format, which has no copy protection. The early returns from those moves indicate they've had little impact on the industry's fortunes - for better or for worse.

The labels' moves have opened up competition in the digital music space. In September, Amazon.com launched a digital music store, featuring only MP3 tracks. Meanwhile other, older digital music vendors, including iTunes and Wal-Mart's Web store, added DRM-free tracks.

Because those songs lack DRM, they can be played on just about any digital music device.
Although it's still early, DRM-free music seems to have had, at best, a slight positive benefit to the music industry.

Sales of DRM-free music to date have "outperformed" EMI's expectations, and Wal-Mart has seen its MP3 sales grow "considerably" since August, when its Web store made them available, representatives for the two companies said. However, neither they nor other labels or Web stores disclosed specific sales results.

Overall, the number of digital songs sold each week seems to have been unaffected by the launch of the major DRM-free stores since May, according to data from Nielsen SoundScan. Digital song sales - both of tracks with and without DRM - are in the same range after May as they were in the weeks before DRM-free sales started.

But that's small consolation for an industry whose wholesale revenue in the United States was down 11 percent in the first half of this year, according to IFPI, the industry's global trade group. That's on top of declines in retail sales in six out of the past seven years, according to the Recording Industry Association of America.

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Is DRM-Free Music Worth It?

From Christopher Breen, Macworld:

Unprotected music tracks—those without digital rights management (DRM)—offer the advantage that you can legally using them without the same restrictions as other tracks. So, for example, you could incorporate them into personal projects such as slide shows and movies made with applications other than Apple’s. (Apple’s iLife suite can use protected iTunes tracks, but programs made by companies such as Adobe, for example, can’t.) But other than their unrestricted use, how do they compare sonically with the protected form? Most DRM-free music is encoded at a high bit rate and is therefore less compressed than standard digital music files. But will you be able to tell the difference between the protected and unprotected version (much less, those versions and one ripped directly from a CD in an uncompressed format)?

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Why Music-Piracy and DRM Ultimately Don't Matter

Cayocosta

With all the conjecture regarding the new-music model lately, it struck me as strange that no one appears to be considering where we’re really headed, and what the implications for the industry might be once we get there. The following is nothing new, yet appears to have been largely misplaced due to the recent resurgence of free-music myopia:

I won't venture to guess when, but it's probably safe to assume that within the next several years, increased wireless bandwidth, reach, and the propagation of wireless Internet devices will facilitate the inexpensive, real-time, high bit-rate, streaming of music just about anywhere; consequently rendering the digital download obsolete, and along with it, any impetus for piracy.

Beyond the iPod:

Rather than downloading and storing files on an iPod or similar device, all that will be necessary for a user to access his or her personal library of music will be the creation of Internet-based play-lists that are universally read by any connected device capable of reproducing sound.

Want to play your music selections at a party? Just access your library URL from the stereo, and from there select one of your play-lists or singles. While driving? Same thing with the radio. While jogging? Same thing with your cell-phone or personal player.

What will these scenarios all have in common? An Internet connection (wireless or land-line) and a subscription to a music streaming service.

Streaming Service:

Containing virtually the entire history of popular music, and paid for by way of monthly plans offered to the consumer by any number of providers, a music streaming service might, for example, charge twenty-dollars per month for unlimited access; and even less under tiered-pricing designed for less frequent users.

ASCAP, BMI, SESAC and Harry Fox:

Under such a system, all royalties generated by personal use (as well as for both terrestrial and Internet radio, potentially) would be accounted for automatically; which raises the ancillary questions of whether or not performance rights organizations will be relevant, and mechanical royalties applicable.

Piracy and DRM:

It follows that due to the convenience, prevalence and anticipated nominal cost of music subscription services, the use of P2P file sharing would drop significantly; if not (for all practical purposes) cease entirely. At such a point, piracy would literally be not worth the while, and likewise the point of DRM, moot.

Furthermore, with parents paying the subscription for the benefit of their households, those who most frequently engage in P2P file-sharing (teens and adolescents) will find themselves having no remaining musical purpose for it; and in essence, they will have been granted their wish - music will be free. Additionally, educational institutions might be offered steep discounts to subscribe their entire campuses, thus finally putting an end to RIAA lawsuits.

Summary:

None of this technology is new, it’s all been around for years. The only barrier to the above scenario becoming reality, is that streaming is not yet convenient enough - for high-speed Internet connectivity is not ubiquitous across all potential listening devices and environments.

Of course, land-line DSL and broadband systems already facilitate streaming - YouTube is a good example, whereby with a reasonably fast connection, playback is both instantaneous and contiguous. However, as land-line access means being physically connected, the application of high bit-rate music streaming is currently limited to (for the most part) these connections. As such, for music streaming to emerge as the new standard of distribution, it must also be viable in everyday mobile situations; therefore broadband wireless Internet access must become prevalent to the point that it becomes commonplace, and the new hardware necessary (wireless car radios, personal players and phones, as well as Internet appliance home stereo and entertainment systems) readily available in the marketplace.

Pali Research Downgrades Warner Music Group

Cayocosta

Largely based upon declining sales data, the report also briefly cites the recent Madonna and Radiohead episodes as additional justification for the downgrade to "Sell" while positing that the industry must change - but doing so will take time and the requisite restructuring will be costly.

Stating "we believe an increasing majority of worldwide consumers simply view music as free" the report suggests a new business model must emerge for music consumption; most likely manifested via DRM-free music at no cost to consumers, supported by advertising and promoted through social-networking.

DRM-free downloads are encouraged as potentially increasing digital revenue near-term.

Signup to read the report at paliresearch.com