Apple Music and Open Standards
On Tuesday, Steve Jobs published a short essay, entitled Thoughts on Music, arguing that anti-piracy protections (euphemistically known as digital-rights management) should be abandoned. Here are some antitrust thoughts on Jobs’ thoughts.
With the stunning global success of Apple’s iPod music player and iTunes online music store, some have called for Apple to “open” the digital rights management (DRM) system that Apple uses to protect its music against theft, so that music purchased from iTunes can be played on digital devices purchased from other companies, and protected music purchased from other online music stores can play on iPods. Let’s examine the current situation and how we got here, then look at three possible alternatives for the future.
The “some” who have called are Norway’s consumer protection agency, who has given Apple an ultimatum to open music bought at the Apple iTunes music store so that it can be played on other MP3 players, and six other European countries. These countries consider the combination of Apple’s huge success with the iPod and its closed DRM system an antitrust concern. The EU might even get involved and it is clear that Jobs was responding to these pressures when he called for the abolition of DRM:
Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.
We have blogged about these issues extensively: about the iTunes/iPod combo, DRM and technological lock-ins, the competitive effects of DRM, and the next iTunes+iPod antitrust action in the U.S.
Jobs’s speech is interesting not only because he is trying to shift the blame to the big four music companies, but also because Apple has seemed so firmly entrenched in the DRM camp. Here is what Jobs says why the music companies should provided DRM-free music:
Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player. In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system. So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. …
Jobs of course conveniently ignores that RIAA argument that mp3s are different from CDs because CDs have to be ripped by the user, which represents at least some effort, whereas mp3s are already in a form that is easily shared over the internet. And Jobs uses RIAA-speak when he refers to “theft” of music rather than to rights infringement.
But the big news is that Apple is the first really powerful player in music distribution to call for an end to DRM (Dave Goldberg of Yahoo! music has also called for an end to DRM). Jobs can’t be dismissed as a hacker or a fringe radical. Apple has proved in the past that it has significant clout in this space (which has permitted Apple to impose their pricing model for the iTunes music store on the music companies). It is also noteworthy that Apple has chosen to cast their story in terms of competition: The unwillingness of the music companies to provide unprotected content forces online distributors to use DRM, which in turn reduces consumer choice since DRM limits the interoperability of music players. Perhaps we will see the stricter view of closed-platforms and consumer protection in Europe indirectly effect the American market. We’re watching for developments.
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February 12th, 2007 at 12:51 pm
It is also worth noting that downloaded DRM protected music is quite different from music obtained by purchasing a CD. Eg, it is much lower quality than CD sound. The difference can be readily distinguished on a standard stereo system. CDs also can and do include video clips, computer games, artwork, coupons etc. all designed to differentiate the product from digital downloads. Consequently, while downloaded music is arguably easier to pass on than music on a CD, it is not as attractive as music on a CD, & thus is unlikely to cannibalize the CD market.
Of course, it may be that the record companies are more worried that download piracy may reduce digital sales, but this too ought to be readily handled by more sensible mechanisms. Eg, by creating a relationship with the customer that are less easy for pirates to replicate (such as life time access to songs bought, protecting the customer against disk crashes, and allowing them to readily repopulate new equipment with their songs).