The DRM-Free Drag… Why a Broader Rollout Remains Elusive

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Major labels have now ditched DRM, right?

Not exactly.  Despite a number of high-profile deals over past year, the digital sales landscape remains a patchwork of protected and unprotected content.  And the culprit appears to be a combination of politics, strategic gamesmanship and cautious observation, despite strong consumer disinterest in usage limitations and iPod incompatibility.

The heavyweight in the space, Apple, famously broke the seal on major label protection by signing a DRM-free deal with EMI in May of last year.  That iTunes watershed was the first of several EMI-driven announcements, though competing majors played a more cautious card.  Meanwhile, Apple started shedding protections on content from willing independent labels.

Eventually, major label hesitation eased, most notably through limited experiments involving Universal Music Group.  Soon thereafter, an aggressive, MP3-only entrance by Amazon pushed all four majors to finally ditch DRM.

But what about high-profile companies like Napster and Rhapsody, a joint venture involving RealNetworks and MTV Networks?  After all, these companies were early movers in paid music, and perhaps more importantly, heavy spenders on the licensing and positioning of protected content.

But that has done little to accelerate the DRM-free licensing timetable.  In January, Napster proclaimed that all of its major label downloads would be available DRM-free by this month.  But instead of unveiling a protection-free store, Napster has been forced to drag the DRM-free timetable into the summer.

Why the delay?  “It’s just taking a while,” Napster president Brad Duea told Digital Music News recently at CTIA in Las Vegas.  The executive offered little more, though the process has undoubtedly been frustrating.

But according to one major label executive, the sluggishness is happening for a reason, one rooted in strategic competitive licensing.  That means tilting the playing field more towards the benefit of labels, and targeting the attack against influential online retailer Apple.  “Mostly they are just rewarding the ‘comers’,” the executive said.  “Basically, those they think can make a real run at iTunes.”

That puts both Rhapsody and Napster in an awkward position, according to the executive, simply because both have been struggling  unsuccessfully against iTunes for years.  Instead, a more compelling stab could come from Amazon, perhaps the freshest, most high-profile, and promising competitor to date.

But even on Amazon, labels are closely watching the experiment.  In January, both Universal Music and Sony BMG confirmed the use of watermarking within their Amazon licensed content, though embedded information is only retail-specific.

And despite a massive giveaway involving Pepsi – and a Super Bowl promotional push – Amazon has yet to reveal broader download volumes.

Meanwhile, paid download sales are continuing to decelerate.  According to information released this week by Nielsen Soundscan, paid download sales increased 28.7 percent to 281.4 million during the recent quarter, far slower than first quarter gains of 51.9 percent last year, and 96 percent two years ago.

Report by publisher Paul Resnikoff in Las Vegas.