In the legislative debate over online music, it has become something of a mantra among Digital Rights Management (DRM) proponents that DRM is necessary to enable a wide variety of business models for digital music distribution. After hearing this in person at the 2007 State of the Net Conference, I decided to take a look at the range of legitimate online music distributors to see just how much the presence or lack of DRM affected business models. I examined seven online music stores, four of which use DRM, three of which do not. There are many other music stores on the Net, and this is not intended to be an exhaustive list. However, according to Q3 2006 figures, Apple controls approximately 72% of the market, eMusic controls about 10%, and the remaining stores are fighting for the scraps. Online music stores are no longer a strange new creature. They've existed since for years, and latecomer iTunes has sold over 2 billion songs since its May, 2003 launch. It would seem enough time has elapsed for a plethora of business models to reach consumers. My intent here is to find out whether DRM really enables the kind of innovation that satisfies musicians, labels, and consumers.
DRM-Based Business Models
iTunes
Buy the Condo Downtown - iTunes is the dominant player, commanding almost 3/4 of the market. It works on Macintosh and Windows systems. No subscription is required. The service provides downloads only, and utilizes FairPlay, a DRM technology that Apple has not licensed to other competitors. This means iTunes songs will not work on portable devices other than the iPod. FairPlay allows for playback on up to five computers and an unlimited number of iPods. Apple CEO Steve Jobs recently stated that he would prefer to sell music sans DRM
.
Napster
Rent the Mansion in the Slums - Napster is the third most popular online music store, holding 4% of market. It works on Windows only. Subscription is required. This is not the original Napster, but PressPlay, the original Sony/Universal venture, in a new guise. Napster provides streaming music at no cost, but Windows Media Audio (WMA) DRM allows each song to be played only three times. Subscribers pay $9.95/month to download an unlimited amount of music for up to three computers. $14.95/month gives subscribers the ability to place music files on an unlimited number of computers, and on WMA-compatible devices such as the Creative Zen. Termination of a Napster subscription renders all downloaded music files unplayable. You can enjoy all the music you want, except that it won't play on an iPod. Once you stop paying the rent, you've got nothing. Buy the Small Condo - Napster also offers a la carte purchase of music files to subscribers. These downloads use WMA DRM.
Yahoo! Music
Rent the Mansion in the Slums - Yahoo! Music comes in tied for fourth, with 3% of the market. It works on Windows only. Subscription is required. $6.95 allows unlimited downloads. For $14.99/mo or $11.99/mo (depending on whether payment is made monthly or annually), subscribers can play music on WMA-compatible devices. Again you can enjoy all the music you want, except that it won't play on an iPod, and once you stop paying the rent, the music dies. Buy the Small Condo Downtown - Yahoo! also offers a la carte purchase of music files to subscribers. These downloads use WMA DRM, so the iPod is out. Note that Yahoo! Music boss Dave Goldberg has been saying DRM must go
.
Zune
Rent the Mansion in A Different Slum - Zune, Microsoft's hardware/software combo, only works with Windows and requires a subscription. For $14.99/mo, unlimited Zune files can be downloaded for use on computers and two (or more in some circumstances) Zune devices. Ending the subscription nixes use of all downloaded files. Microsoft's own WMA PlaysForSure format will not work with the Zune device, so music obtained via Yahoo! Music or Napster will not work on the Zune. Buy the Even Smaller Condo Downtown - Zune provides a la carte purchase of music files to subscribers, but they are incompatible with iPods or PlaysForSure devices.
Business Models That Do Not Use DRM
eMusic
Buy the Ranch On the Edge of Town - eMusic is the second most popular online music store. The store sells music in standard MP3 format that can be used on any digital music player, from iPod to Zen to Zune, and on Linux, Macintosh, and Windows. Selection is more limited than that of the DRM-based stores, but smaller labels have jumped on the eMusic bandwagon, and acts like Barenaked Ladies, Credence Clearwater Revival, Jimi Hendrix, Moby, Thievery Corporation, and Tom Waites can be found. A subscription is required. 30 downloads/mo. costs $9.99, while $14.99 gets you 50 songs/mo. and $19.99 gets you 75 songs/mo. Songs do not carry over from month to month.
Amie Street
Buy the Ranch in the Country - Amie Street also sells universally-accessible MP3 tracks without DRM, but a subscription is not required. This store is all about indie music, and the pricing structure was established with this in mind. Artists and indie labels upload songs. As popularity of a song grows, its price increases from free to 98 cents per track. 70% of proceeds go to the band or label, and the rest goes to Amie Street. Site users make "RECs" or recommendations to other users, and receive credits when recommended tracks hit the 98 cent mark.
Magnatune
Buy the Bungalo on 100 Acres in the Mountains - Magnatune and Amie Street take a similar approach, except that Magnatune provides tracks in a wide variety of formats (AAC, FLAC, MP3, Ogg, and WAV), all without DRM. Magnatune gives artists half the revenue from music sold, and pricing is variable. Albums sell for between $5 and $22. The customer decides at time of purchase how much to pay for the music. John Buckman, Magnatune's founder, offers an eloquent explanation of why he established Magnatune
.
Conclusion
DRM-based stores seem to provide either:
- ownership in a proprietary format, with use restrictions (iTunes, Napster, Yahoo!, Zune), or
- rental in a proprietary format, with use restrictions (Napster, Yahoo!, Zune)
Non-DRM stores seem to provide either:
- less expensive ownership in a nonproprietary format, without restrictions (eMusic, Amie Street, Magnatune), or
- less expensive ownership in several nonproprietary formats, without restrictions (Magnatune)
DRM-based music stores can provide music for rent, something the labels been pushing since the earliest days of online music sales. But although predictions of the demise of ala carte pricing have been rife for years, music for rent hasn't caught on in a big way. The top two online music stores, accounting for 82% of the market, are built around a la carte pricing. Apparently while some consumers are fine with renting music, most of them want to own it. DRM-based stores are each built around a file format and an associated DRM technology. This limits operating system choice and device compatibility. To use the "record player" analogy I heard at State of the Net, iTunes lets you play your Stevie Wonder record only if you're using a Sony or Aiwa receiver and a Sony turntable. Napster and Yahoo! Music let you play it only on an Aiwa receiver and any turntable sold by Sears (as long as it's not a Sony or an Aiwa). Zune lets you play it only on an Aiwa reciever and an Aiwa turntable. Depending on how narrowly define "business model," each of these three types of stores may be operating under a different model. But are these variations really innovative? In Silicon Valley, the term "innovation" carries with it a subjective element. It's not enough to introduce something new; it has to provide value. Perhaps in the context of online music sales, "innovation" is really providing customers with more choice in the form of compatibility across operating systems and devices, broad file format options, and customer-driven pricing mechanisms. If that is the case, DRM-based stores aren't the ones doing the innovating.
Update
I've posted a follow-up with information about subsequent DRM moves in the music industry. [23 NOV 07].
Mar 30, 2007 at 9:44 AM Seriously...
Your description of songs bought with iTunes is wrong!!! Songs purchased with iTunes work with iPods, Macs, PC's, select Motorola Phones, can be burned to CDs, and re-ripped into open formats that can be played on absolutely any audio player on the market.
However, music purchased using Janus will not play on Macs and therefor are not as open, and music purchased using Plays4Sure will not work on macs nor can they be burned to CD's.
Your information needs to say this in order to have a fair comparison.
Mar 30, 2007 at 10:17 AM If you do a la carte music from any of these stores, I believe you can burn CDs from songs purchased from any of these services and do the same. This is not an advantage point for iTunes.
Lots of people don't want to do this if they don't have to: recompress and already compressed song to play it on your non-iPod. The only advantage that iTunes has over most of the other players is that the propietrary DAP it plays on is the most ubiquitous one.
Mar 30, 2007 at 10:19 AM Their is no such thing as "buying" a DRM media, it's a complete nonsense.
For digital files:
- Change your hard-drive/OS/players/... too much time and the file self-destroy
- The provider goes bankrupt along with its servers ; without your files cannot renew their "licence" and sooner or later they self-destroy
- Abusive terms of use generally allows the provider to do what it wants with the files it sold you, including revoking your rights on them
For physical media
- new hardware may not be compatible with out-of-the-standard trics used by DRM
- when DRM is build within a standard, it generally come with revocation techniques that allows the **AA to remotely destroy compromised brands of hardware and players
And I am not even talking about privacy and computer security issue.
And of course, if the DRM is efficient, there is by design no way to have a "real" backup or interoperable copy.
A DRM media is meant to self-destroy sooner or later. That's the goal. So you cannot buy a DRM media, you are actuallly renting it : the provider just forgot to tell you for how long (as well as all the other limitations of the DRM).
Mar 30, 2007 at 11:00 AM dupont54:
The DRM 'purchased' music is indeed purchased. I have iTunes purchased tracks on a computer that hasn't been on the 'net since 2003, yet they still play on that computer just fine. No need to contact Apple every time I play them. The only time Apple is contacted is the *FIRST* time I play a protected song on a given computer. (This computer isn't even counted as one of the 5, since I did a 'deauthorize all' a year ago, and this computer hasn't been on the 'net since, and hasn't gotten word.)
Same with iPods. My dad's iPod has a couple of songs I purchased on it, even though it hasn't been connected to a computer in a year.
I don't know for certain, but from what I've read, PlaysForSure and Zune 'purchased' tracks are the same way. It's only the subscription tracks that you don't own, and that is known from the outset.
And, yes, you can burn CDs from any 'purchased' tracks, iTunes, PlaysForSure, or Zune.
That said, I don't LIKE DRM, either. I buy as much music as I can from eMusic, and generally boycott RIAA-affiliated labels. The only exception is songs for my wife or my kids, who don't understand my chosen ethical decision, so I buy their songs on iTunes. (Which is odd, since my wife is the one who initiated our family boycott of Wal-Mart, and is more than happy to boycott Best Buy, but the latter might just be because it means I spend less money on electronics...)
Mar 30, 2007 at 11:21 AM Full disclosure: I am the founder one of the original "non-DRM stores" - <a>Bitmunk</a>.
Erik,
I think your analysis is great, but it does have one flaw - you assume that there isn't room for both DRM and non-DRM business models. In actuality, every model listed above is a legitimate one worth trying. It will take at least a decade to see if they work.
Subscription is what large corporations want because it guarantees a stable revenue stream for a company - once you have a subscriber, you don't have to try as hard to keep selling to them. It's automatic once they're hooked and it takes quite a bit for them to stop subscribing.
Unfortunately for the large corporations - subscriptions work best with resources that you consume on a regular basis. The jury is still out on whether or not music falls into that category. I agree that it doesn't look like people want to rent music right now - but we're still too early in the process to make the call.
I am not making a case for or against DRM - it should be the artist's choice. Personally, I am against DRM when it comes to owning the music, much like several others in the industry. However, in the case of rental - DRM does make sense... and it is that DRM that has created the innovation for music rental.
There are far more non-DRM business models that are interesting - but that doesn't mean there isn't room for DRM in the market. I think what should be focused on is that DRM isn't a panacea as it was once predicted to be - there are cracks forming in its armor.
In the end, the artists and the fans should be deciding the distribution methods - not the middle men (including us).
Mar 30, 2007 at 11:53 AM Manu,
Thanks for the comment. The statement of someone who has actually been in the trenches of the music industry is welcome indeed.
My intention was not to find a winner in the DRM/non-DRM comparison. I was specifically motivated to see whether DRM really was necessary to provide creative new business models, as that seems to be an underpinning for industry arguments to legislators when they make the case for special legal protection for DRM.
I agree with wholeheartedly that fans should be the ones deciding distribution methods. That is why I think legislated protection of DRM is a bad idea, even though I use iTunes.
Mar 30, 2007 at 12:40 PM 32K? Well, it beats my clock radio perhaps, but my friends who have spent half their life savings on their audio system and dedicated listening rooms would beg to differ. The eventual <a href="http://www.bitworksmusic.com"; rel="nofollow">solution</a> is that lossless downloads will be the standard in the future.
For the record, BitWorks Music's MP3 encoding uses variable bitrate, approximately 260 kbps. ... and btw, I'm looking for good artists if you know any. ;-)
If 128 kbps DRMed downloads are your thing, your loss I guess (ha ha, pun didja get it?).
Mar 30, 2007 at 1:22 PM What many DRM apologists often forget is that DRM doesn't really work. Of course when confronted with this we get sentiments about how "it will get there eventually". But the problem is these technologies can not determine whether a song/movie/whatever is legally obtained or not. Not until everything is distributed under DRM and that's one day hell will freeze over.
If DRM/TPM/TC ever gets so widely accepted everything that's not DRM'd should become illegal, there will be no "fair use", freedom of speech, human rights etc. News can be dictated to us using proprietary and closed standards and noone can "roll their own" due to diminished rights. Though you might be able to make content if you have the dough.
DRM should be read as DRLM (Digital Rights Limiting Management)
And people can mark my words, the day when DRM and Trusted Computing will become de-facto if not obligatory, has already passed. I mean when you look at the stores today can you even find a gadget (mobile phone, pmp, computer etc) that doesn't have a DRM of any kind on it?
It's only a matter of time when any DRM free content becomes forbidden. Unless people act soon to prevent it.
Mar 30, 2007 at 1:26 PM DRM can be used as an innovative vehicle for delivering digital content, i.e.; free plays before purchase. Combining payment authorization with the DRM technology, eliminates the need to integrate the activity associated with controlling delivery of the file and collection of payment with the web application. The artist simply makes the encoded file available on a web site and when selected a licenses is issued, and if appropriate, payment is collected. The content owner can choose the usage rules they want to impose. For example, they can allow the file to be copied to a CD thus eliminating any further usage restrictions.
Mar 30, 2007 at 2:07 PM DRM can also stifle online innovation.
The Weedshare business model that was absorbed by Microsoft serve as the foundation for the Zune had an additional benefit in that it allowed for a new form of physical media distribution over CD.
The Zune format does not carry this benefit.
Instead of DRM promoting innovation, heavy-handed corporate action has stifled the simplest means for introducing people to a music scene.
Boo on Microsoft.
Mar 30, 2007 at 5:50 PM To Andrew Abbas
I'm not talking about Weedsahre. Check out sercurecastle.com. We handle both liscense issuance and payment autorization without having to write to an API. Now, why is this not good for the Indi artist or anyone who want's to distribute the content on the web?
Mar 31, 2007 at 1:42 AM Why would I want digital music at 128K? It sounds like rubbish on a 5K rig and makes dj'ing impossible
As for the 32K person - you have spent too much time listening to those tinny little headphones mate!! Where's the BASS ???? Where's the "top end" - and eveything sounds so damned BRIGHT (too much top with too little definition)
Some of us music consumers want to do MORE with our music and not LESS - for that we need high res sounds ...
Apr 1, 2007 at 4:16 PM Just a comment to those folks that describe burning a CD of music tracks "purchased" from iTunes, Zune, Rhapsody, etc. and then re-ripping them the method for getting them into a non-DRM format so they can be downloaded to other non-proprietary audio players - if you do that in the US you are breaking the law. Bypassing DRM is illegal according to the DCMA. So while it may be technically possible the recording industry lobbyist have successfully made you a criminal.
Now, go ahead and pay your money to them before you get the nasty letter! Or, start shopping at one of the non-DRM sites that don't think you are a criminal before you even buy their product. The choice is yours.
Better yet, continue the efforts of Gizmodo and boycott RIAA labels by buying music from independent artists such as those on eMusic, Jamendo, or cdBaby!!
John
Apr 2, 2007 at 12:22 AM If you're a college (or law school) student and you want to get a flavor of what the PC-based DRM systems are like, check out http://www.ruckus.com. The service is similar to Yahoo! Music and Napster but "tethered" downloads are free for students. That means you can download songs to your computer, but they won't play if copied to a portable device or another computer.
--Adam
Apr 2, 2007 at 8:46 AM How do we describe iTunes, now that Apple has brokered a deal with EMI for <a href="http://playlistmag.com/news/2007/04/02/drmfree/index.php"; rel="nofollow">DRM-less distribution on iTunes</a>? The neighborhood will likely be changing rapidly this year.
Jun 10, 2007 at 4:00 PM Using "enable" describing DRM seems a slight misnomer because it is all about restricting rather than enabling. The record companies and artists are still playing catch up - there must be a better way to ease the restricted use without giving away the store.
Jun 11, 2007 at 4:01 AM Rights based DRM has tha capability (if used within an effective business model) to satisfy all players in the game from key stake holders to consumers. The key should be to uphold copyright but not remove the ease and enjoyment of file transfer on the behalf of the paying consumer. Why should they suffer for purchasing legally. 'on the fly' file conversion within a Rights based DRM framework provides the potential make audio files available across platforms and devices (unrestricted interoperability); rewarding the very people who have purchased legally! Couple this with remote access to content facilitated by a web browser and a mobile client (unrestricted accessability) and you create a win-win situation.......now that sounds like music to everyone's ears!!!!