Amazon, Apple and a DRM Free World

On January 10, Amazon.com (NASDAQ:AMZN) announced the addition of Sony BMG Music Entertainment to its repertoire of labels available at Amazon MP3, the DRM-free music store of Amazon.com. With this deal, Amazon is now offering DRM-free MP3s from the four major music labels - EMI, Universal, Warner Music, and Sony BMG - and 33,000 independent labels. This deal puts Apple (NASDAQ:AAPL) at a disadvantage.

The music industry has been witnessing rapid downfall in the sale of CDs. Some solace in this environment is the increasing sales of digital songs and albums. Apple iTunes, with more than two-thirds marketshare, has been successful in making the customers pay for online music. The music industry will now be looking forward to AMZN's role in increasing sales of digital songs and albums - AMZN now supply almost 3.1M DRM free songs. The Sony BMG deal brings in a massive portfolio of leading artists that include Backstreet Boys, Beyoncé Knowles, Britney Spears, Carlos Santana, Celine Dion, Kenny G, Michael Jackson and more.

The advantage of Amazon MP3 is that it is compatible with hardware devices like PCs, iPod, Zunes, iPhones and BlackBerrys, and can be used with applications like iTunes and Windows Media Player. However, most of the iTunes songs restrict user choice as they came with Apple's proprietary FairPlay DRM, which made these songs compatible only with Apple music players. The top 100 songs at Amazon MP3 come at a price of $0.89 each and most other tracks are offered at a range of $0.89-$0.99, when the songs at iTunes are sold at $0.99 per song. This variability in price, will attract both the labels and the customers.

Record companies would also have liked the creation of a counterbalance to Apple's dominance in the sales of music. Media opinion is that Apple exerts authority in pricing and other terms while negotiating with record labels. Promoting DRM free songs is finding favor with marketers too. On January 14, Pepsi announced its tie-up with AMZN to promote Pepsi Stuff, a program through which consumers can collect points from Pepsi packages and redeem them for downloads from Amazon MP3. This promotion, beginning February 1, is touted as Pepsi's biggest promotion ever and will mark its debut on the Super Bowl. Earlier, in 2004, Pepsi had a promotional arrangement with iTunes.

Apple will feel the heat. More importantly, the final nail in the coffin for DRM enabled songs has been hammered.

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Comments

[Jostiman:]

I do not agree. Apple does not make all that much on the songs themselves. The real profit is in the hardware. Apple sells iPods en iPhones and will only sell more when available content sources increase. Most of the new DRM-free content purchased at Amazon will be played on iPods!

2008 Jan 15 10:32 AM

[Jostiman:]

I do not agree. This will be more help Apple then hurt. Apple does not make all that much on the songs themselves. The real profit is in the hardware. Apple sells iPods en iPhones and will only sell more when available content sources increase. .Most of the new DRM-free content purchased at Amazon will be played on iPods!

2008 Jan 15 10:43 AM

[Tom B:]

"Most of the new DRM-free content purchased at Amazon will be played on iPods!"

Correct. Additionally 1) Apple can shut down AMZN by starting a price war (if they choose) 2) iTunes is very simple and convenient to use-- people may choose not to do all the extra clicking on AMZN to save-- sometimes-- as little as 10 cents 3) Apple's DRM is no particularly annoying; DRM-free is not a huge draw for me.

Don't start on AMZN's UnBox video; that's dead from the starting gate. Doesn't play on portable devices!

2008 Jan 15 11:10 AM

[saurabh:]

I support the change. As content creators with a focus on new and emerging media, we understand the challenges surrounding the monetization ability of digital content. In this light the debate around protecting content from ‘unauthorised’ downloads / usage has intrigued me right from the beginning both as a consumer as well as a creator.
While iTunes and more recently even sections of Bollywood have been able to sell DRM protected content and reaped moderate benefits, introducing the idea of ‘paid’ digital media to consumers, DRM implementation is still hobbled by lack of universal standards, high costs and overstated efficacy. As a Short Form Content developer in India, we have evaluated DRM specifically in our context (SFC) as opposed to the holy grail of digital content. And we believe, A new medium needs a new idiom. The success of the quirky creative endeavors has been fuelled by a viral internet platform. The content creators allow (via their web sites / channels] users to carry (embed) their work and share it with the rest of the cyber world without paying a penny.

This massive traffic and organized distribution has created new markets and made it easier to access the old ones. For some amateurs there may not be much after a short spate of viewership but a serialized, well marketed amateur video can evolve into a brand (lonelygirl15). I strongly feel Internet is a beautiful medium to help content travel to various markets and demographics. Instead of locking it down be prepared to re-purpose / re-orient your product to any distribution channels such as Mobile or even Print.

(Posted by: [e-mail])

2008 Jan 16 05:35 AM