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Apple Reduces DRM in iTunes

 

In a move that will be welcomed by consumers, Apple announced that it would offer certain files from a major record label without the digital rights management (DRM) typically included on files downloaded from iTunes. “Digital rights management” refers to certain protections placed on digital files that prevents consumers from modifying them or easily sharing them with others. DRM is widely considered to be anti-consumer, but major record labels and intellectual property (IP) owners usually used the protections to avoid returning to the height of illegal peer-to-peer file sharing.

 

In the past several years, Apple has been extraordinarily successful in "trapping" consumers with Apple brands. First, Apple succeeded in positioning the iPod as the newest "in thing" with numerous television and print ads. Once consumers were hooked, they headed to iTunes to download new music and other digital media, such as music videos and television shows. The problem, of course, was the fact that the files purchased on iTunes would only work with an iPod. Thus, consumers who had already invested their money in DRM protected files felt obligated to continue to use the Apple products, even while there were new competitors from music such as Napster, Rhapsody, Microsoft’s Urge and Yahoo! Music. The subscription services, especially, provided a very stiff competitor to iTunes’ “only-buy-a-la-carte” business model.

 

While successful for a short while, Apple certainly has to see that the end is near. The increasing competition and cry for more freedom would have eventually affected Apple’s bottom line, and failing to produce files free of DRM when other options exist would have incentivized many consumers to return to the peer-to-peer method of collecting music or moving more rapidly to subscription services.

 

The music labels, of course, are subject to a similar analysis. While the labels initially resisted the (less profitable) subscription services and endorsed DRM, the power of the consumer has led to these new products and services being introduced.

 

Of course, the new DRM-free files are going to cost you more. The non-DRM files are currently priced at $1.29, or 30 cents more than the customary 99 cent per song rate. Certainly, the labels expect that some of these files will appear in peer-to-peer networks, and the increased price seems to anticipate that loss. The increase in price also comes more in line with a “store bought” CD price and is also likely designed to “prepare” consumers for likely price increases in the future, even for DRM protected content.

 

Bottom Line: While Apple may be lauded in certain circles for “listening to the consumer” it is important to remember that this is also a savvy business decision given the changing competitive and consumer environments. Apple likely stemmed the tide of consumer movement from iTunes, laid the groundwork for an increase in prices and positioned itself to compete with new competing services in the future.

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