Resnikoff’s Parting Shot: The Downer on DRM-Free

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Going DRM-free was a major psychological leap for major labels.

But for consumers, the break was less monumental.  And despite an aggressive and selective licensing attack – one that saddles iTunes with protected content – the overall effect has been marginal.  “The iTunes market share is just growing since they started this,” Steve Jobs told the New York Times earlier this month.

And “starting this” meant licensing MP3s to Amazon, and supporting a massive, over-the-top Super Bowl campaign earlier this year.  It also meant licensing MP3s to Napster, Rhapsody, 7digital, and others.  But none of those providers have revealed DRM-free sales numbers, a suspiciously vacant scorecard.

But Steve Jobs isn’t the only one pointing to a mostly status quo result.  “DRM on the download business hasn’t really moved the needle frankly, growth trends haven’t changed DRM or DRM-free,” Bronfman relayed during a recent interview at the Goldman Sachs Communacopia Conference in New York.

Sure, stores like Amazon are selling a more flexible, superior download.  But the context is bigger than DRM or DRM-free.  Apple wasn’t the first to sell paid downloads, but they were the first to license, package, and deliver them sensibly within an ecosystem that made sense.  Now, that first-mover advantage is proving almost impossible to dislodge, despite the aggressive licensing strategy.

Now, the question is how majors react to the lack of reaction among consumers.  Is this a game of patience, or is money being lost by forcing Apple to sell DRM-protected content (outside of EMI)?  Or, is it time to reframe the match entirely, and radically reshape pricing and packaging – across both online and mobile platforms?

The questions are critical as majors step into a new chapter, one that features the ultra-ambitious MySpace Music.  MySpace chief executive Chris DeWolfe is expecting a game-changer, though selling MP3s – through AmazonMP3 or anyone else – remains a tough proposition.

Other aspects of the plan – including ad-supported, on-demand access to major label catalogs – remain tough monetization propositions.  Outside of the hype, executives like Bronfman are approaching the initiative with an experimental eye, realizing that social networking remains a revolution without a non-advertising monetization strategy.  “I think social media just in and of itself has yet to find a business model that really works per se,” Bronfman noted.  “And to the extent it’s advertising, particularly in the near-term, I think that’s going to be somewhat challenged. So I don’t think social media as a whole as it’s currently constructed necessarily would play a big role in terms of revenue for Warner Music.”

Then again, MySpace Music represents a big stab outside of discrete downloads (as dominated by iTunes) and mobile ringtones, currently digital breadwinners.  Additionally, the plan gives majors a chunk of a joint venture that also brokers in non-recording assets like merchandising and ticketing.  That represents something fresh, and an experimental testing-ground for new revenue sources.

But one of those experiments is whether anyone – including MySpace Music and e-commerce partner AmazonMP3 – can dislodge the download dominance of Apple.  Amazon already got a grand stage, and MySpace is pouring millions into its splash.  But if both ultimately fail to make a ripple, the next chapter should be to close the book on a DRM-protected iTunes Store.

Paul Resnikoff, Publisher.