A Changing Map for Digital Music

An Announcement From Apple and EMI
Goes Far Beyond DRM-Free Downloads
April 9, 2007

A week ago, EMI and Apple set the digital-music world buzzing with news from London. No, the Beatles weren't coming to iTunes just yet. Rather, EMI had broken ranks with the rest of the major labels and decided to offer its catalog to music retailers without digital-rights-management software that restricts consumers' ability to copy files and transfer them between devices.

That was the biggest headline of the day, but not the only news. The DRM-free songs would be ripped at a higher bit rate, giving them improved sound quality. They would cost more -- $1.29 per song, though albums would cost the same in both formats. And lower-quality, 99-cent DRM-protected songs weren't being phased out, just making room for the new offerings.

A lot to take in, even without the strains of "Got to Get You Into My Life." Put together, it adds up to a lot of changes for the digital-music world. Right now those changes are more interesting than epochal, but just wait.

First off, some perspective: Digital-music sales account for just 15% of recorded-music sales in the U.S. Granted, some percentage of those CDs sold become digital files, and some percentage of those escape onto peer-to-peer networks. But contrary to what the wired may think, people still do go to record stores and buy CDs. (And even some records.) That said, digital music is clearly the future of the music industry. And the arrival of DRM-free files from a major label (eMusic has long sold DRM-free MP3s from indie labels) marks a potentially big change in the digital-music landscape, for a host of reasons.

First and most obviously, a major label is finally treating its customers like customers, instead of regarding them as likely shoplifters who should be given as few rights as possible.

"We've always argued that the best way to combat illegal traffic is to make legal content available at decent value and conveniently," EMI Group CEO Eric Nicoli said in his appearance with Apple's Steve Jobs, striking a welcome note of sanity and realism in an industry known more for suing its customers of late. "We take the view that we have to trust consumers. The fact that some will continue to disappoint us and choose to steal the music is inevitable."

Second, Apple's use of FairPlay DRM had been criticized as a method of locking customers into its iTunes/iPod ecology -- songs bought from iTunes won't play on other music players unless they're first copied to an audio CD and ripped back into MP3s to remove the DRM. While I never understood why some expected Mr. Jobs and Co. to blithely give up a business advantage (the bleatings of EU bureaucrats most definitely included), it's refreshing to think of Apple competing without DRM as a disincentive to switch. Here's betting Apple will continue to dominate without a crutch it doesn't need -- iTunes and the iPod are head and shoulders above their competitors on their own, let alone in combination.

One wise move is that your extra 30 cents will get you not just DRM-free music, but better-sounding music. Paying extra money just for the privilege of not being treated like a common thief would have got both companies pilloried. And in offering better-sounding songs, it was also wise to jump the bit rate from 128 kbps to 256 kbps instead of only to 192 kbps, generally considered CD-quality. As before, that would have just bred complaints that Apple's 128-kbps bit rates were too low to begin with. Granted, most people can't hear the difference between 128 kbps and a CD, as Slate explained here, but that doesn't matter: All good marketing requires is that customers know which number is bigger.

It was also refreshing to hear Mr. Jobs acknowledge that "audiophiles can still tell the difference between [an iTunes track] and the original." I'm no audiophile -- the louder the better, thanks -- but iTunes tracks have always sounded slightly muddy to me, an unfortunate exception to Apple's usual high standards. (And no, I'm not imagining I can tell the difference -- or at least I wasn't in a blind test four years ago. Apologies that the links in that article no longer work.)

A key question: Will consumers pay the extra 30 cents? Where price points are concerned, a dollar is magic. You don't complain if your soda costs that much, you understand the bartender gets a single for each beer handed across the bar, and there's a reason it's not called the $1.29 Store. Whether your purchase is the stuff of routine or whim, a dollar isn't much worth worrying about -- even if you're online where that dollar is just bits rearranging themselves somewhere. But go higher than a dollar, and you start doing math.

That's a question Mr. Jobs seems to have thought through -- Apple appears to be in a win-win situation pricewise. If $1.29 downloads sell well, that's evidence he was right in arguing DRM has held back digital-music sales. And the improved audio quality makes the restricted downloads look even worse, ratcheting up the pressure on the other three major labels to follow EMI's lead. (Hence Mr. Jobs's confident estimate that half of iTunes' catalog will be offered in DRM-free versions by the end of 2007.) And if the DRM-free downloads don't do as well as 99-cent, restricted downloads? Then Mr. Jobs will have knocked the legs out from under the music industry's calls for tiered song pricing, without yielding the point or putting iTunes' sales at risk.

One more piece of the equation: The music industry is clearly worried about the album. Late last month, Apple introduced the Complete My Album feature; the latest announcement included word that full albums from EMI will be $9.99 in both restricted and unrestricted formats (which raises the question of why on earth anyone would buy the former).

To me, the fall of the album is the real problem that confronts the music industry, more than piracy and the difficulties of navigating the transition to a digital world. Before digital music, consumers bought full-length CDs (and, once upon a time, records and tapes) to get the songs they wanted. But consumers came to dislike the album format -- complaints that most CDs are too expensive and contain just a couple of good songs far predate iTunes. Once digital music gave consumers a chance to abandon the album, they did -- whether it was by stealing individual songs off Napster or buying them off iTunes.

Nothing about the rock album is sacred -- it only dates back to mid-period Bob Dylan or the Beatles' "Sgt. Pepper's". (There's that band again.) And the music industry is adjusting -- witness this New York Times story about Candy Hill, a rap trio signed to a two-song deal by Universal. But at the same time, the industry is trying to buy whatever time it can. I doubt it can do more than protect its retreat -- I think the album model is too far gone to save. That said, it's far from certain that music fans will like the change they've ushered in. Labels are criticized for not giving artists a chance to develop a following now, but today will look like an era of rare patience in a world where two-song deals become the norm.

Finally, some dissections of the Apple-EMI deal seem to have missed just how much has changed since the iTunes store opened its virtual doors four years ago. It's easy to say consumers got nothing because DRM-free downloads should have been the rule in 2003. But four years ago, getting the big labels to offer downloads with relatively flexible restrictions was rightly seen as a major coup. Then, bit rates were as much about file size as audio quality; today, exponential growth in storage capacity has made audio quality paramount. The digital-music world has changed, and will keep changing, in ways I doubt anyone can predict -- not even a strategist as canny as Mr. Jobs. Whatever happens, the goal should be for consumers to get technology that's easier to use and better choices. When you strip aside all the conspiracy theories and currents buffeting the music industry, that's what happened last week.


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