Resnikoff’s Parting Shot: DRM Misunderstood

If you thought DRM was complicated, try DRM-free!

At least, the brand of DRM-free being spun by EMI Music and Apple.  Sure, you can have your freedom, but you have to pay the price!  And if you don’t know what DRM really is – like so many consumers out there – then you are now confronted with a more complicated iTunes Store.  Newbies usually call more experienced friends for help in times like these, but doesn’t that ruin the simplicity that Apple is so good at?  If a mother has to dial her son at college to figure out why there are two prices for the (seemingly) same track, doesn’t that make iPod+iTunes unnecessarily complicated and annoying?  Can your grandma really understand what’s going on now?

Jobs is famous for being consumer friendly, but the movement suddenly shifted into reverse!  During the joint announcement, EMI chief executive Eric Nicoli pointed to research that showed that consumers are willing to pay extra for protection-free music.  “In all of our research, consumers tell us overwhelmingly that they are willing to pay a higher price for tracks that work anywhere,” he said.  But just where did that focus group come from?  On the digital streets, the opposite preference is being blared in the billions.  Jump onto Limewire, and consumers are strongly expressing a preference for DRM-free tracks at a price tag of $0!  Does that make a more expensive offering by iTunes suddenly attractive?

That’s not to say that some consumers will pay more.  But the number of consumers that will pay more for higher fidelity and flexibility represent a fraction of the current buying public.  And the buying public represents a small fraction of the downloading mass.  In other words, premium tracks at a higher price will appeal to a niche within a niche.  And that sideshow will lessen the impact of iTunes, which gained so much traction based on its uniformity and simplicity.

Sure, Steve Jobs gets a win, and a potential domino effect involving other labels.  The move will help to de-pressurize the regulatory standoff happening in Europe, and Jobs has now shifted the focus onto remaining labels Universal, Warner, and Sony BMG.  Think that iTunes is non-interoperable?  Just pay a little more, and you can dribble your ball on any court!  Or, stay within the walls of iPod+iTunes at the existing price.

Except, outside of that narrow political gain, everyone loses.  Apple loses because the consumer experience is compromised, and EMI loses because the piracy headache could potentially become that much worse.  Hop onto Limewire today, and the experience is hit-or-miss.  A track could be truncated, scratchy, spoofed, corrupted, or worse, carry a virus.  But starting in a few months, a new breed of higher-quality track will be floating on the internet, a better smoke at the same, free price.  And, worse yet, consumer demand on the paid end is likely to be lukewarm, especially given the easy availability on P2P networks.

In the end, the refreshed experience is likely to mirror the existing one: some will pay, but most will not.

Not only that, it is entirely unclear if the other majors will follow.  Sure, the majors tend to move in concert, but will brass like Doug Morris, Edgar Bronfman, and Thomas Hesse follow the Nicoli lead so readily?  Maybe, but maybe not.  And if not, iTunes is left without the cooperation of most of the majors, despite a major shift in its ecommerce offering.

In the end, the bleeding will be worse on the EMI side.  After all, Apple is all about the iPod, and a slightly-compromised iTunes Store is unlikely to dent the financial scorecard.  Music ecommerce has always been a sideshow for Apple, one that garners heavy media attention but really means little to investors and the financial bottom line.  If the iTunes Store were selling more than 2.5 billion over nearly four years, the story would be different.  But so far, that hasn’t been the case.

So why was the move made?  For EMI, the decision to position more expensive, DRM-free tracks reflects a deeper misunderstanding about the way consumers view digital downloads.  Protections are actually far less important than most think, especially for those within the walls of iPod+iTunes.  And higher fidelity is also unimportant, except to a niche audiophile group.  But pricing is important, especially given a typical consumer appetite for thousands of tracks.  For most, the current economics simply don’t make sense, and that is why most consumers stop purchasing after a few dozen downloads, at most.

Actually, there are some winners here: iPod+iTunes competitors.  For them, a move away from DRM offers a critical blast of oxygen, no matter how impure.  But wouldn’t a real grand slam come from simply dumping DRM and keeping the same price, or even dropping it?  Ditching DRM is an important move, but ignoring the important role that pricing and simplicity play will probably make this development irrelevant to most consumers.  Sure, freedom is great, but more complicated experiences and higher price tags represent a step in the wrong direction.

Paul Resnikoff, Editor